Key Findings
generate tax revenues at all levels of This report has documented the decline in capital expenditures and operational spending of the GoM offshore oil and natural gas industry that occurred over the 2008 to 2010 period. The principal reasons for this decline include the economic recession in 2008-09 and the establishment of a moratorium on deepwater drilling and subsequent slowdown of permit issuance in both GoM deep and shallow waters in 2010 and into 2011. We estimate that tens of thousands of jobs have been lost in response to the decline in capital expenditures and operational spending of the offshore GoM oil and natural gas industry over this period. We also demonstrate the near term government – if the government pursues a balanced regulatory approach that allows for the timely development of the backlog of GoM projects in an environmentally responsible manner.

Under such government policy, we estimate total spending by the GoM offshore oil and natural gas industry to increase by over 70 percent by 2013 from 2010 levels, and capital expenditures to increase by over 140 percent. If potential spending levels are reached, total employment supported by the Gulf of Mexico oil and natural gas industry in 2013 could exceed 430 thousand jobs or a 77 percent increase from 2010. .

potential of the offshore GoM oil and natural gas industry to create jobs, boost GDP and

Executive Summary
The offshore oil and natural gas industry is instrumental to the United States both from an energy supply perspective and due to its contribution to U.S. GDP and job creation. In 2010, over 30 percent of the oil and 11 percent of the natural gas produced in the United States was produced in the Gulf of Mexico (GoM). This production is crucial to U.S. energy security. In addition, capital investment and purchases of intermediate inputs of the oil and natural gas industry stimulate its entire value chain and ripple through many sectors of the economy, creating jobs, contributing to GDP and generating tax revenue at all levels of government. Oil and natural gas industry activity supports employment across a wide swath of industries in manufacturing and services, including oil and natural gas machinery, air and marine transport, legal and insurance services. This report builds out the entire value chain of oil and natural gas development and production in the Gulf of Mexico. It quantifies the capital investment and purchases of intermediate goods undertaken by the oil and natural gas industry, identifies linkages to supplying industries, and estimates both job creation and with contribution oil and to GDP gas associated natural

capital equipment and intermediate goods to Gulf of Mexico oil and natural gas operations, is able to bring primary data to bear on the issues of importance to this study.

Capital Investment and Spending of the Oil and Natural Gas Industry – Gulf of Mexico
Historical Spending 2008-2010 The development of oil and natural gas resources in the offshore Gulf of Mexico is highly capital intensive. Total industry investment and spending in the GoM is estimated to have been $80 billion from 2008 to 2010 or an average of $26.5 billion a year
2

(Figure 1). Capital investments,

which are required to bring new oil and natural gas production online, totaled $28.0 billion over the same three-year period, averaging $9.3 billion per year over this period. Operating expenditures, which are comprised of purchases of intermediate inputs totaled $51.6 billion or an average of $17.2 billion per year .
3

development. A unique feature and strength of this study is the primary nature of the capital investment and spending data. Quest
2

Offshore Resources, Inc. (Quest), drawing on its proprietary database of suppliers of

Industry investment and spending includes labor associated with design, fabrication, and installation. Operating expenditures include labor for operations.

* Projected spending contingent on returning to pre-Macondo permitting rates. Source: Quest Offshore Resources, Inc. Total spending in the Gulf of Mexico declined 15 percent over the 2008 to 2010 time period from $28.5 billion to $24.2 billion per capital year. Operational expenditures by 46 increased slightly during that period while expenditures plummeted percent. The principal reasons for reduced GoM capital investment were declining energy prices, the economic recession which began in of and late a 2008, and the Quest’s forecasts for Gulf of Mexico establishment moratorium deepwater drilling reduced spending are based on actual project developments in the Gulf of Mexico. Quest tracks individual projects on a day to day basis and utilizes actual contracts (when available) and historical benchmark data to
4

drilling moratorium. Approximately one-third of the 2010 decline in capital investment was due to reductions in GoM shallow water capital investment even though the shallow water was not directly subjected to the drilling moratorium. permitting activity. Shallow water drilling significantly slowed due to a slowdown in

subsequent

offshore permitting following the Macondo incident in 2010. The 10 percent year-toyear decline in total spending and 33 percent decline in capital spending from 2009 to 2010 were due in large part to the

4 Projects are defined as oil field developments or oil field development components.

2

best ascertain the timing and scope of future projects (Figure 2). This project data, coupled spending with for historical various benchmarks equipment of and

expenditure data where possible. When actual operational expenditures are not known, operational expenditures are determined through benchmarking against comparable projects on a project by project basis.

* Projected number of projects contingent on returning to pre-Macondo permitting rates. Source: Quest Offshore Resources, Inc. Quest has identified key providers to the oil and natural gas supply chain throughout the country, both along the Gulf Coast region and in other parts of the United States. A sample of companies that contribute to the offshore oil and natural gas industry is identified in Table 2.

Source: Quest Offshore Resources, Inc. Please see Appendix 7 for a more comprehensive company list of Gulf of Mexico suppliers.

4

Projected Spending 2011-2013 The vast majority of the Gulf of Mexico oil and natural gas industry expenditures are spent domestically. Less than five percent of GoM operational spending and capital investment is spent outside the U.S. Total domestic spending levels are projected to increase from the 2010 level of $24.2 billion to $41.4 billion by 2013, a 71 percent increase. Capital expenditures are projected to reach $15.7 billion in 2013, a 141 percent increase from 2010 levels. Crucial to Quest’s spending/investment projection is the assumption that permitting rates in the Gulf of Mexico return to their pre-Macondo levels. To the extent that this does not happen, all spending and economic projections in this report would need to be revised downward accordingly. The unique confluence of the global

employment, contributions to GDP, and tax revenues at all levels of government.

Economic Impacts Associated with Gulf of Mexico Oil and Natural Gas Industry Activity
Quest estimated both the employment and GDP impacts associated with offshore Gulf of Mexico oil and natural gas industry investment and spending at both national and state levels. Our estimated economic impacts are likely conservative because they do not take into account the benefits of increased government revenue from bonus bids, royalties, and corporate income taxes. They also do not account for the economic impact associated with certain profit type income. As expected, the GDP and employment impacts track the pattern over of the spending/investment, declining

economic recession, volatile energy prices, the deepwater drilling moratorium, and the slow down in GoM permit rates have aligned to drop Gulf of Mexico offshore spending to its lowest level in years. These factors have contributed to a large back log of projects which operators are expected to develop assuming a balanced regulatory environment going forward. If this backlog of existing projects is developed in a timely manner spending by the Gulf of Mexico offshore oil and natural gas industry could change course and resume an upward trend. This rise in capital and operational spending would also facilitate an increase in

historical period from 2008 to 2010 and rising over the projected period of 2011 to 2013. The GDP impacts decreased by an estimated 15 percent from 2008 to 2010, largely attributable to the same forces driving the spending reduction over this period. and The total gas U.S industry GDP impact is associated with offshore Gulf of Mexico oil natural spending projected to improve to $32.9 billion in 2011, after falling to its lowest level in the study period in 2010 at $26.1 billion. (Table 3) If the issuance of permits returns to

5

pre-Macondo levels required to support planned developments, the total contribution to U.S. GDP is expected to reach $44.5 billion by 2013, a 70% increase over the

2010 level. To the extent that permitting rates do not return to historical levels, these estimates would need to be adjusted downwards.

Table 3: Total Estimated Historical and Projected Contribution to Gross Domestic Product due to the Offshore Gulf of Mexico Oil and Natural Gas Industry Investments and Spending, $billions (2008-2013)*

* Projected GDP impacts contingent on returning to pre-Macondo permitting rates. Source: Quest Offshore Resources, Inc. Similar to GDP impacts, estimates of total employment (direct, indirect and induced jobs ) associated with offshore Gulf of Mexico oil and natural gas industry investments reached its lowest level over the study period in 2010 (Figure 3). Even so, the GoM offshore oil and natural gas industry is a significant provider of employment in the United States, with an estimated 242 thousand jobs supported by industry activity in 2010. Quest estimates that over 60 thousand of these jobs were within the oil and natural gas industry and 180 thousand were either indirect (providing equipment and services to the offshore Gulf of Mexico oil and natural gas industry) or induced jobs. For 2010, Quest estimated a
Direct employment is defined as jobs within the oil and natural gas industry. Indirect employment occurs throughout the supply chain of the oil and natural gas industry. Induced employment is jobs supported by household spending of labor income earned either directly or indirectly from oil and natural gas business activity.
5

15 percent reduction in total jobs associated with GoM oil and natural gas industry activity compared to 2009. Likewise, the 2009 employment level is estimated to be 7 percent below 2008 levels. Employment in 2011 is expected to grow to 310 thousand jobs, a 28 percent increase on 2010 due to increased investments associated with long delayed projects. This estimate is likely optimistic expected given to the current by 15 rate of permitting. Employment levels in 2012 are increase percent compared to 2011 to 350 thousand jobs. In 2013, employment is projected to reach its highest level in the study period at 430 thousand jobs which is a 20 percent increase on the 2012 level and a 77 percent increase over the 2010 level.

Employment is defined as total payroll, and self employed employment inclusive of part time workers. Includes employment throughout the U.S. including states outside the Gulf region.

7

State Impacts
The majority of the spending/capital percent from 2008. Total employment in the four GoM states supported by the offshore Gulf of Mexico oil and natural gas industry is estimated to have been 175 thousand in 2010, a decrease of 60 thousand (25 percent) from 2008 (Figure 5). The Gulf State’s direct oil and natural gas industry employment is estimated to have dropped by 25 thousand jobs over the same time period. investments and therefore the majority of the associated economic impacts are estimated to occur in the four main producing Gulf coast states: Texas, Louisiana, Mississippi, and Alabama. In 2010, 72 percent of spending and investment, or approximately $17.5 billion, is estimated to have occurred in the four Gulf States (Figure 4), down 19

Figure 4: Estimated Historical and Projected Spending of the Gulf of Mexico Offshore Oil and Natural Gas Industry in Gulf Coast States and Non-Gulf States (2008-2013) *

$45
Historical Gulf States Non-Gulf States Projected Projected Gulf States Non-Gulf States

Figure 5: Estimated Historical and Projected Employment in Gulf Coast States and NonGulf States due to Gulf of Mexico Offshore Oil and Natural Gas Industry Activity (20082013)*
500,000 450,000
Number of Jobs
Historical Historical Gulf States Non-Gulf States Projected Projected Gulf States Non-Gulf States

We estimate that supported employment levels could exceed 320 thousand in the four Gulf Coast states by 2013 if projected spending and investment levels are met (Table 4). This would represent an 80 percent increase over the 2010 employment levels and would be comprised of

Coast States. The 2010 spending was 4 percent lower than in 2008 with employment 7 percent lower. In 2013, Quest projects spending in the non-Gulf States due to the offshore Gulf of Mexico activity to increase to $10.8 billion as operators invest heavily to bring forward delayed projects. This

approximately 85 thousand direct industry jobs and 235 thousand indirect and induced jobs. Reaching these employment levels will require a return to pre-Macondo permitting rates and a balanced regulatory

estimated 29 percent increase in spending from 2010 is projected to spur an expansion of non-Gulf State employment to 110 thousand, a 66 percent increase.

environment that allows for a resumption of environmentally production. safe development and

While the industry remains committed to developing the natural resources located in the Gulf of Mexico, they will only be able to do so according to the speed with which

The positive economic impacts of the offshore oil and natural gas industry

offshore drilling permits are granted. Quest’s projections of domestic spending increasing by 71 percent from 2010-2013, contributions to GDP increasing by 70 percent, and employment increasing 77 percent are all predicated on the assumption of a return to historical rates of permitting.

investments/spending in the Gulf of Mexico are not restricted to the Gulf States or limited to the oil and natural gas industry. They are spread over a wide geographic area and ripple through many sectors of the economy, from oil and natural gas

machinery manufacturers to marine and air transport services to food service providers servicing offshore operations and financial companies that provide financial services and insurance to the industry. The offshore Gulf of Mexico oil and natural gas industry is estimated to have spent $6.7 billion in 2010 outside the for Gulf 35 Coast percent and states. of This annual 65

Growth of the offshore Gulf of Mexico oil and natural gas industry will be crucial for meeting U.S. energy needs over the coming decades, and for spurring job creation and economic growth. In light of the potential of the offshore oil and natural gas industry to create jobs, enhance U.S. energy security, and increase U.S. GDP, the return to normal activity in the Gulf of Mexico in a safe and environmentally responsible manner is of utmost importance to the United States.

accounted

investment/spending

supported

thousand jobs in the non-Gulf of Mexico

10

1. Introduction

11

Production of oil and natural gas from the offshore Gulf of Mexico (“GoM”) provides a significant share of total U.S. oil and natural gas production. Approximately 1.6 million

gas project must go through a series of steps in order to be developed. Initial

expenditures necessary to identify targets and estimate the potential recoverable

barrels per day of crude oil or 30 percent of 2010 domestic oil production, and 6.7 billion cubic feet per day of U.S. natural gas production (11 percent) originated from the GoM . The development of these resources provides positive economic impacts to our nation’s economy in terms of employment, GDP and tax revenues. It is also crucial to U.S. energy security.
7

resources in place include seismic surveys and the drilling and evaluation of exploration wells. For projects that are commercially

viable, the full range of above and below water equipment must be designed and purchased. Offshore equipment includes

production platforms and potentially on-site processing facilities as-well as below water equipment generally referred to as SURF (Subsea, Umbilicals, Risers and Flowlines).

Quest Offshore Resources, Inc. (Quest) was commissioned by the American Petroleum Institute (API) and the National Ocean Industries Association (NOIA) to provide an evaluation of the impacts of offshore GoM oil and natural gas development. Quest is a full-service market research and consulting firm focused on the global deepwater oil and natural gas industry. Much of the analysis in this report relies on information that Quest has received directly from companies

Finally the equipment must be installed and additional development wells must be

drilled. The full process necessary to bring an offshore field to production from initial appraisal to operation is detailed in

Appendix 2.

This

report

is

structured

as

follows.

Preceding this introductory section is the Key Findings and Executive Summary

outlining all principal results and conclusions of this report. Immediately following this

operating in the GoM. This report assesses the total economic impacts of GoM

section is the Data Development section outlining how Quest gathers data on current projects and creates projections of future offshore industry spending. Following this is the I/O Methodology section that outlines how economic impacts from offshore

development (both shallow and deepwater) on the U.S. economy as a whole as well as estimates of economic contributions to individual states.

This analysis accounts for all offshore GoM capital investment and operational spending through the entire “life cycle” of offshore operations.
7

spending are estimated as well as how these impacts are allocated among the individual states. In the next section we

as project spending through 2013. The following national section and details the state estimated economic

Quest Offshore is providing this study on the impacts of Gulf of Mexico offshore oil and natural gas development under the assumption that permits for offshore drilling which began to be reissued during the first half of 2011, will continue to be issued at an increasing pace throughout the year, and ultimately arriving back at pre-

individual

impacts including number of jobs supported as well as contributions to GDP. The final section of the report summarizes the main conclusions and results. Appendixes

included in this report are:

•

Appendix 1: Summary of Non-Gulf Coast State Economic Impacts

Macondo rates. To the extent that this is not the case, all spending and economic projections in this report would need to be revised downward accordingly.

2-1 Overview of Quest Offshore Data Development
Quest Offshore Resources, Inc. is a fullservice market research and consulting firm focused on the global deepwater oil and natural gas industry. As a function of Quest’s core business, the company is daily engaged in the collection and analysis of data as it relates to the offshore oil and natural gas industry. Quest serves the global community of operating oil and natural gas companies, their suppliers, financial firms, and many others by providing detailed data and analysis on capital investment and operational spending undertaken by the offshore industry. Quest collects and develops market data from a variety of sources at the project-level (Figure 6). A unique feature of this analysis, and which lends it high credibility, is its reliance on primary data through direct contact with the industry’s supply chain. This connection with operating oil and natural gas companies through to the smallest of equipment and service providers imparts a high quality/accuracy to the data. This data is tracked in Quest’s proprietary Quest

Enhanced

Deepwater

Development

Database as well as other proprietary
databases related to shipyards and other facets of the supply chain. Quest builds up capital and operating expenditures on a project by project basis, with detailed information recorded on the supply of the equipment develop and services oil and necessary natural to gas

offshore

projects. Quest Offshore tracks not only existing or historical projects, but also projects that are in all stages of

development from the prospect (or undrilled target) stage through to development. For projects without firm development

information, Quest utilizes benchmarking based on Quest’s proprietary databases to forecast development timing and scenarios; this information coupled with operators expected exploration and appraisal

programs are used to take into account yet to be discovered and delineated fields that may be developed in the forecast time frame.

Source: Quest OffshoreResources, Inc.
Secondary data development was also undertaken in this analysis and refers to any source of information and data that is not collected via direct contact with the industry, such as press releases, financial reports (and other SEC filings), industry white papers, industry presentations, and other publicly available sources. The designation of “Tertiary” data collection was reserved for areas of research that fell outside of the offshore oil and natural gas industry. This information was collected in the same manner as described for secondary data development and relied heavily on public sources of information. Quest Offshore’s estimation of domestic produce accurate analysis and forecasts. Once collected and verified, the data is housed and maintained in Quest Offshore’s Deepwater Development Database. The primary components of this proprietary database are the numerous pieces of offshore oilfield equipment and services that are used in the development of an offshore project.

Source: Quest Offshore Resources, Inc.
These categories represent the four main expenditure classes of offshore oil and natural gas production, and roughly follow the life cycle of a field described in the “LifeCycle of a Field Development” section (Appendix 2). G&G or geological and geophysical describes the work done before drilling to identify drilling prospects, drilling constitutes the actual drilling of the wells, while subsea equipment two to and major the facilities capital Energy Management and was combined with Quest’s forecast of shallow water platforms and wells to provide information on the number of shallow water

developments for historical and forecast years. This information was then combined with estimated costs for the various

equipment pieces to provide estimates of capital investment. Operational costs were based on known operating costs for facilities and were extrapolated for unknown facilities based on benchmarks according to facility type, facility size, production, and age.

constitutes expenditures

the

related

equipment

needed to bring the field into production. Facilities are platforms and floating

production units that act as the physical location where oil or natural gas is initially produced as well as drilling and control centers. Subsea equipment includes trees, pipelines, umbilicals and other associated equipment.

2-2 Uncertainty and Assumptions in Data Collection and Forecasting
As with any market forecast, the projections provided herein are subject to change according to the dynamics of the offshore oil and natural gas industry and

Information on the number of historical shallow water platforms, pipelines and wells was collected from the Bureau of Ocean

macroeconomic conditions. While Quest has provided the spending numbers according to a sound forecasting methodology that has 17

been

widely

accepted

throughout

the

offshore oil and natural gas industry. This allows Quest to provide accurate information on the supply chain accounting for a majority of capital spending which enables Quest to allocate a majority of historical spending to the location where it was spent. Quest has utilized these actual historical spending breakdowns to extrapolate the spending locations for future projects, which should continue to provide an accurate depiction of the location of supplies associated with primary offshore oil and natural gas capital investment and operational spending. When determining spending by state, Quest

industry, there will remain some margin of error (or uncertainty) when assessing longterm activity for individual companies. Also, a changed economic outlook or regulatory environment could have a significant impact on the forecast this contained herein. In that

particular,

analysis

assumed

permitting rates in the Gulf of Mexico return to their pre-Macondo levels over the 2011 to 2013 period. To the extent that this does not happen, capital investment and associated economic impacts would need to be

adjusted downward.

2-3 Allocation of Capital Investment and Operational Spending to States
The data compiled for this analysis allows for a comprehensive characterization of the complete value chain associated with oil and natural gas field developments in the Gulf of Mexico. In particular, this data provides Quest with the ability to tie offshore capital investment with specific pieces of equipment for known and named offshore Hence, field Quest

has relied on its industry experience to assign the cost of equipment to certain states based on known manufacturing

contracts placed with equipment providers. For example, via the data contained in Quest’s database, spending for a subsea production system can be tied directly to a specific state based on which manufacturer is producing the final product (given Quest’s knowledge manufacturing of oilfield equipment Platform and

locations).

floating production unit construction takes place at shipyards in known locations so this spending is placed into the appropriate states. Other key equipment manufacturing and support services also take place at known location allowing this spending to be accurately placed in the appropriate state as well. This level of spending – referred to herein as “Primary Spending” – represents the cost for goods and services that can be assigned to certain components of

development

projects.

believes that both historical and projected capital investment projections provided

herein are based upon the highest quality data available, and are realistic given the universe of development projects that are assumed to be undertaken through 2013. Additionally, due to the level of detail available in Quest’s data, Quest is able to track the supply chain involved in the

equipment by location, and accounts for 18

over half of the total annual spending. Quest’s proprietary database provides this level of detail for all major components of developments, which allows Quest to track manufacturing, construction and installation locations for projects in the Gulf of Mexico. Quest used this data to determine historical spending trends by state for those parts of developments with known manufacturing locations. Quest then utilized these historical trends to project spending locations by state associated with potential future projects.

For the Gulf of Mexico states, the allocated spending was partitioned by state based upon the need for the equipment and services in offshore Gulf operations and the assessed ability of each Gulf of Mexico state to provide them.

The non-Gulf of Mexico allocated spending was assigned to states using a measure of oil and natural gas industry “intensity” by state.

A measure of oil and natural gas intensity by Allocation of spending across states was carried out as follows. Initially each state was apportioned the primary spending that could be reasonably determined due to Quest’s knowledge of the oil and natural gas supply chain. Due to the complexity of the offshore Gulf of Mexico oil and natural gas supply chain some of the state locations for some spending could not be determined with certainty. This spending (referred to as allocated) was divided into two sections, spending occurring within one of the four GoM states and spending deemed to have occurred outside the GoM region. Quest weighted the state level oil and natural gas intensity factors by distance factors (given below) under the assumption that the further the distance between the state and the GoM, the less likely it is that the allocated spending occurred there. state was developed with Bureau of

Economic Analysis state level data on oil and natural gas production, manufacturing of oil and natural gas equipment and support services, and engineering and

gas extraction, mining and oil and natural gas field machinery manufacturing). This was accomplished by dividing spending according to the activity type this spending entailed, e.g. drilling spending to the drilling category, manufacturing to the

Economic

employed to estimate GDP and employment impacts from the estimated capital

investment and operational spending data. Rims II multipliers give contribution to GDP and employment per unit increase in final per dollar spending. For each state and for each year primary and allocated spending were partitioned into five BEA industrial sectors corresponding to the relevant Rims II multipliers (drilling oil of natural gas wells, support activities for oil and natural gas operations, construction, oil and natural

manufacturing category, etc.

Primary and

allocated spending across these categories was then summed to provide yearly state by state totals for each category (Table 7).

State level GDP impacts were estimated by multiplying the capital and operational spending (partitioned into BEA industrial sectors as described above) by the

impacts were derived from total employment impacts. This was accomplished by utilizing the detailed industry effects of spending provided by the BEA RIMS II model multipliers (which detail the industry by industry activity for each spending category).

corresponding Rims II GDP multipliers and summing the products. Quest followed the same procedure to estimate employment impacts for each state, using the

The U.S. Gulf of Mexico’s offshore oil and natural gas industry invests billions of dollars each year for the development and

$26.9 billion. In 2010, spending again declined to $24.2 billion despite the

economy beginning to recover. This 10 percent decrease was due primarily to the drilling moratorium and the slowdown in permitting after the Macondo incident. The impacts of the moratorium
9

operation of offshore oil and natural gas fields that provide critical energy resources to the country. The annual sums invested in the Gulf of Mexico are regularly in the tensof-billions of dollars range, making this sector one of the most capital intensive industries in the economy.

are

more

accurately indicated by the 33 percent decrease in capital spending from 2009 to 2010, which fell to $6.4 billion from $9.6 billion (Figure 8).

Capital spending includes labor associated with design, fabrication, and installation

24

Of the $24.2 billion in spending in 2010, operational expenditures
10

causing) significant reductions in spending, the future for the region has the potential to be very positive and could see increasing levels of spending under a balanced

accounted for 64

percent of total spending (its highest over the 2010-2013 period) due to a major decrease in capital investment of 46 percent compared to 2008. Capital expenditures are expected to be highest over the study period relative to operating expenditures in 2013 at $15.7 billion, or 38 percent of total

regulatory environment. It should also be noted that shallow water spending activity in the Gulf has been adversely affected due to a significant slowdown in permitting activity in 2010 (despite their being no official moratorium on shallow water permits) with shallow water capital expenditures down 32 percent in 2010 as compared to 2009 (Table 8).

expenditures of $41.4 billion. A significant backlog of projects are expected to proceed if and when regulatory uncertainties are removed.

While the federal moratorium on offshore deepwater drilling activity and subsequent regulatory changes caused (and are still

From 2009-2010, overall spending (both deep and shallow water) fell by 10 percent. The most affected sector was the drilling sector, which saw a 41 percent decrease in spending during the period as deepwater drilling all but halted for two quarters of the year due to the moratorium and shallow water drilling significantly declined due to the extreme slowing of drilling permit issuances. The drilling sector is also expected to see

the most significant growth in spending if a return to historical conditions occurs, with drilling spending in 2013 expected to rise 165 percent from 2010 levels to $9.1 billion.

Facilities spending is also expected to see significant growth from 2010 to 2013, with spending expected to be up by 113 percent over 2008 levels reaching $3.2 billion. For this particular category, 2010 spending was

26

actually 236 percent higher at $1.5 billion than in 2008 as specific large projects, which had already completed exploration and appraisal drilling moved forward.

Mexico, coupled with operators expected exploration and appraisal programs which are used to take into account yet to be discovered and delineated fields that may be developed in the forecast time frame. It is important to note that Quest Offshore is providing the spending forecasts used in this report on the U.S. Gulf of Mexico’s offshore oil and natural gas industry under the assumption that permits for offshore drilling, which began to be reissued during the first half of 2011, will continue to be issued at an increasing pace throughout the year, and ultimately arriving back at levels seen prior to the Macondo incident (Figure 9).

Subsea spending inclusive of hardware, risers, pipelines and umbilicals is expected to grow 125 percent to $3.2 billion in 2013 from $1.4 billion in 2010. This level will still be slightly below the $3.8 billion seen in 2008, due to the drilling moratorium pushing the next big wave of very large projects further out into the future. Such major projects drive subsea spending through major hardware and pipeline installation contracts. Quest’s spending projections are based on actual projects to be developed in the Gulf of

Although activity has slowed dramatically in 2010, as well as the first half of 2011, it is important to note that the projects slated for evaluation and development by oil

operational spending levels increase as forecasted, Quest projects that GoM oil production will begin to increase after 2013 (Figure 10). Increases in production will lag spending due to the time necessary for development to come online. GoM oil production levels could reach approximately 1.8 million barrels per day by 2016 given that many large capital projects have

companies still exist. The halt in drilling permits has likely not resulted in cancellation of these projects; rather it has delayed the sanctioning of numerous world class

deepwater projects postponing deepwater production growth into 2015-2016. The capital investment and operational spending projections estimated by Quest Offshore rely on the assumption that permitting activity in the U.S. Gulf of Mexico will see a noticeable increase during the second half of 2011 further accelerating in 2012 and continue into the future as oil companies, drilling contractors and federal regulators work to restore permitting rates back to historical levels. To the extent that this is not the case, investment levels and projected economic impacts estimated herein would need to be revised downward.

already been sanctioned. Quest projects declining natural gas production through 2013 followed by several years of relative steady production levels of around 5 Bcf per day. Recent increases in on-shore natural gas production have made purely natural gas targets in the Gulf less attractive.

Quest’s forecast for both oil and natural gas GoM production would need to be revised downward if permitting activity does not see a significant increase from current levels. One upside to Quest’s production

projections is that natural gas production could be higher if there is a relatively greater

If there is a return to historical permitting levels and annual GoM investment and

4-1 Domestic vs. International Capital Investment
As many of the service providers employed by the oil and natural gas industry are located overseas, it is important to built in an Asian shipyard, the processing and production topsides, which are the more technically complex and thus expensive equipment, are fabricated in the United States. account Operating for the expenditures, spending which to

understand what portion of the capital investment remains in the U.S., and what part flows to other countries. Quest’s

required

analysis reveals that while a portion of offshore capital investment flows abroad, the vast majority is used to purchase equipment and structures manufactured in the United States. Most of the internationally purchased equipment is of relatively lower value, consisting of, for instance, steel pipe and floating production system hulls. For floating production systems, while the hull is likely

maintain and operate existing producing assets, account on average for 66 percent of spending over the 2008-2013 period and occur almost exclusively in the United States. From 2008 to 2010, 98 percent of total spending (capital investment and

operational spending) was domestic with an average of only 2 percent occurring

overseas. This changed only slightly for the 29

period 2011-2013 with 97 percent of total spending being domestic compared to 3 percent occurring overseas. This is due to a higher share of capital spending flowing

overseas (primarily floating production units hull and pipelines) relative to the earlier time frame (Table 9).

4-2 Spending Trends Within and Outside of the Gulf States
The majority (roughly three-quarters) of GoM offshore operational spending and investment occurs in the Gulf Coast states: Texas, Louisiana, Mississippi, and Alabama (Table10). Quest estimates that a significant portion of the spending, about one-quarter, occurs over a wider geographic area outside the Gulf. The primary reason spending is significantly higher in the Gulf states is due to supplying firms location near to production due to the cost (or in some cases impossibility) of transporting supplies and equipment and the need for services to be located close to producing areas. Despite this, spending outside the region results in the economic impacts of GoM offshore development being felt throughout the U.S. and throughout many sectors of the

that constitute these percentages. In 2010, the estimated amount of spending totaled $6.7 billion across 36 non-Gulf Coast States. Spending is expected to grow 61 percent to $10.8 billion in 2013. This spending thus contributes to both GDP and employment impacts outside the immediate Gulf Coast area.

Mississippi and Texas account for 74 percent of spending on average, and up to 76 percent of spending (in 2008). The percentage of total spending is higher in the Gulf States in years with less capital investment, as non-Gulf Coast States see most of their spending from capital

expenditures. A relatively higher proportion of operational expenditures occur in the Gulf States. Growth in operational expenditures accounts for the slight decline in the share of total expenditures in non-Gulf Coast States over the forecast period. Forecasted spending increases are driven by increases in development activity in the Gulf of Mexico, with development activity expected to increase steadily into the forecast period. After dismal showings in 2009 Although it may appear that the estimated amount of spending in non-Gulf Coast States is not significant, it is important to understand the absolute scale of investment and 2010, key indicators of

development activity such as host facilities, number of wells drilled and miles of pipelines installed are projected to begin to steadily grow (Table 11).

5-1 National Impacts
Overall spending for the Gulf of Mexico offshore industry in 2008 was over $28.5 billion which translated into a total GDP impact of over $30.8 billion (Figure 12) . This impact was felt throughout the country and supported over 305 thousand jobs nationwide (Figure 11). Approximately 90 thousand of those jobs were directly related to the industry (meaning jobs working directly for oil and natural gas companies or for contractors that are directly paid by the oil and natural gas industry) while 220 thousand
11

were indirect (meaning jobs providing goods and services to oil companies such as components for manufacturing, legal and financial services, etc.) and induced jobs (meaning jobs throughout the economy that result from the spending of income from direct and indirect employment such as waiters, retail workers, automobile

manufacturers, service providers, etc). The year 2008 coincided with, the tail end of a strong investment period which had seen development activity increase and economic impacts grow.

GDP and employment impact results are likely conservative because they do not take into account the economic impacts of increased government revenue from bonus bids, royalties, and corporate income taxes. Nor do they account for the impacts of certain profit type income associated with oil and gas operations.

34

In 2009, in part due to the effects of the economic recession, industry capital

shallow water due to the decrease in permits issued. As a result of the decrease in

investment and operational spending fell to $27.1 billion with an associated GDP impact of just over $29.3 billion (Figure 12). This economic activity supported approximately 285 thousand jobs in total of which 80 thousand were direct, and 205 thousand were indirect and induced jobs. The year

capital investment and operational spending in 2010, the total GDP impact decreased to $26.1 billion despite the stirrings led to of total

economic

recovery.

This

employment levels associated with GoM offshore oil and natural gas development falling to roughly 240 thousand jobs of which 60 thousand were direct jobs and 180 thousand were indirect and induced jobs. Overall this was a 21 percent decline nationwide from supported employment

2010 saw capital investment and operational spending fall to its lowest level over the period of interest to $24.2 billion. This was primarily due to the moratorium on drilling in the deepwater GoM and the subsequent lack of deepwater drilling permits issued and the associated slow down in drilling in the

levels in 2008, contributions to GDP fell 15 percent nationwide.

Figure 12: Estimated Historical and Projected Total Spending and Contribution to GDP of Gulf of Mexico Oil and Natural Gas Industry Activity (2008-2013)*

Economic impacts from oil and natural gas capital investment and purchases of

operational spending outlook for the GoM in 2011 was predicated on a return to historical permitting rates by the second half of 2011, which was an optimistic assumption not in line with current permitting rates. Spending is expected to reach $30.5 billion, resulting in a total GDP impact of over $32.3 billion. Total supported employment is estimated at 311 thousand jobs of which 80 thousand are direct and 230 thousand are indirect and induced. This would represent a 28 percent increase in employment over 2010 and a 24 percent increase in contributions to GDP. A large portion of this projected spending increase stems from major projects far along in the development cycle which had been delayed in the previous two years.

intermediate goods ripple through many sectors of the economy. In the combined Louisiana, Texas, Alabama and Mississippi region almost all sectors of the economy benefit. Examples include the

transportation and warehousing sectors with increases of $340 million in 2010, the real estate industry, which shows a $2.5 billion increase, the health care and social assistance industry, with a $686 million increase, and the food service industry, with a $221 million increase.

direct and 265 thousand are indirect and induced. This would represent a 15 percent increase in supported employment from 2011 and an 18 percent increase in contribution to GDP.

In 2012, again assuming a return to historical permitting rates in the GoM, it is estimated that capital and operational

spending in the GoM could reach $35.4 billion resulting in an estimated GDP impact of over $38.2 billion. Capital spending is

Finally we estimate that in 2013, which is projected to yield all time record investment and spending levels under the assumption that permitting rates in the GoM had returned to pre-Macondo levels by mid 2011, (an optimistic assumption not met), investment and spending should reach nearly $41.4 billion. In 2013, projects which had seen their exploration and appraisal drilling halted by the drilling moratorium should see final investment decisions and subsequent major spending. This is

projected to grow at the fastest rate at 17 percent due to more and more delayed projects beginning development while

operational expenditures are projected to increase by 16 percent as more projects come into production. This uptick in activity should see the industry and its suppliers hiring with total supported employment associated with GoM oil and natural gas development projected to reach 355

estimated to result in a total GDP impact of $44.5 billion, a 16 percent increase over

thousand jobs of which 90 thousand are

36

2012, propelling employment levels to an all time high of 430 thousand jobs, a 21 percent increase over the 2012 level. Direct

Throughout the Gulf Coast, activities such as engineering and management,

manufacturing of equipment, support of offshore activities, and fabrication of

employment is estimated to comprise 115 thousand of these jobs while 315 thousand are estimated to be indirect and induced. This would represent a 21 percent increase in supported employment from 2012 and a 17 percent increase in contribution to GDP.

platforms and topsides are widespread. Due to this concentration of primary investment and spending, the offshore Gulf of Mexico oil and natural gas industry is instrumental in the economic health of these states. In 2010, capital investment and operational

5-2 State and Regional Impacts
The Gulf Coast states, with the primary four being Texas, Louisiana, Mississippi, and Alabama, (including the federal waters of these states) are areas which produce oil and natural gas and receive the majority of the spending from the offshore oil and natural gas industry in the Gulf of Mexico. These states are the location of most of the primary spending for capital equipment and purchases of intermediate inputs needed for the operational activities of the Gulf of Mexico oil and natural gas industry.

spending in these four states totaled $17.5 billion, with Alabama accounting for $2.7 billion of spending, Louisiana accounting for $7.3 billion, Mississippi accounting for $0.3 billion of spending and Texas $7.3 billion (Table 12). The total contribution to GDP of these states associated with GoM offshore oil and natural gas activity stood at just over $19.1 billion in 2010 with $2.6 billion centered in Alabama, $7.4 billion in

In 2013 capital investment and purchases of intermediate goods are projected to reach their highest levels in the studied period, assuming that permitting rates in the Gulf of Mexico return to pre-Macondo levels. Total capital investment and spending in the four state region is projected to reach $30.6 billion. spending offshore More specifically, investment and in Alabama oil associated natural with gas

In 2010 the Gulf Coast States, defined as Alabama, Louisiana, Mississippi, and Texas, saw employment levels of 175 thousand due to Gulf of Mexico offshore oil and natural gas industry activity (Figure 13). Jobs tied directly to the industry were estimated at 42 thousand while indirect and induced jobs were estimated at 135 thousand. These states see the highest employment levels due to the concentration of spending in the region as many goods and services

GoM

and

development is estimated at $4.8 billion, Louisiana at $12.9 billion, Mississippi at $0.4 billion and Texas at $12.5 billion. This investment and purchases of intermediate inputs is estimated to increase GDP in the four state area by over $33.2 billion. In

providers to the industry are located near to the Gulf coast. Employees on drilling rigs and other offshore personnel who often work offshore for two week stretches normally live close to their onshore bases for ease of transportation.

particular for 2013, the contributions to GDP in Alabama due to GoM offshore oil and natural gas industry activity is projected to be $4.7 billion, Louisiana $13 billion,

Mississippi $0.4 billion and Texas at $15.1 billion.

38

Figure 13: Estimated Historical and Projected Direct and Indirect/Induced Jobs in Gulf Coast States Supported by Gulf of Mexico Oil and Natural Gas Industry Activity vs. Other States (2008-2013)*
350,000
Historical Gulf States Non- Gulf States Projected Projected Gulf States Non- Gulf States

At the time of the moratorium the Louisiana Mid-Continent Oil and Natural Gas

18 thousand in Louisiana, 500 in Mississippi and 16 thousand in Texas. In 2010 an estimated 135 thousand indirect and

Association stated that for every idle rig platform there were 800-1400 jobs at risk.12 According to the association wages lost for these jobs could exceed $5 to $10 million for one month per platform, with a maximum of 33 rigs having been idled at the peak.

induced jobs in the Gulf States were due to the GoM offshore oil and natural gas industry’s investment and spending (Table 13). More specifically, 19 thousand jobs in Alabama were supported due to the indirect and induced effects of offshore oil and

Direct employment associated with oil and natural gas operations in the Gulf States stood at 42 thousand in 2010, with

Outside of the Gulf States, Quest estimated that offshore Gulf of Mexico oil and natural gas industry activity supported 65 thousand jobs in 36 other states in 2010. Total contribution to GDP from these states due to offshore GoM oil and natural gas industry activity was estimated at $7.0 billion in 2010 based on total spending in these states of $6.7 billion. The non-Gulf of Mexico States, which primarily provide manufactured

contributions to GDP to $11.3 billion and a 67 percent increase in employment to 105 thousand jobs. (See Appendix 1 for a detailed description of non-Gulf Coast State impacts)

5-3 Impacts on Other Industries
While the economic impact of the offshore Gulf of Mexico oil and natural gas industry is felt across many sectors, certain industries are impacted more than others. The largest other industry beneficiary, due to the

goods, component parts and services to the industry, are expected to see spending levels rise 61 percent to $10.8 billion in 2013 from 2010 levels. This spending rise is expected to yield a 61 percent increase in

investment and operations of the offshore Gulf of Mexico oil and natural gas industry,

40

was the real estate and rental and leasing industry (Table 14). Activity in this sector

were supported due to offshore GoM oil and natural gas industry activity.

Total indirect and induced jobs due to offshore GoM oil and natural gas industry activity stood at 180 thousand jobs in 2010. The large impacts of oil and natural gas industry activity on other sectors make up a large share of the total economy-wide economic impacts. This plays an important role in the value of the industry to the U.S. economy.

beneficially

supported

manufacturing sector, with a GDP impact of approximately $2.0 billion and over 23 thousand professional, jobs supported and and the

scientific

technical

services sector with GDP impact in 2010 of $1.2 billion and supported employment of approximately 14 thousand jobs. The GoM oil and natural gas industry also supports jobs in the real estate and construction sectors.

41

6. Conclusions

42

This report has documented the decline in capital expenditures and operational

industry

over

this

period.

We

also

demonstrate the near term potential of the offshore GoM oil and natural gas industry to create jobs, boost GDP and generate tax revenues at all levels of government – if the government pursues a balanced regulatory approach that allows for the timely

spending of the GoM offshore oil and natural gas industry that occurred over the 2008 to 2010 period. The principal reasons for this decline include the economic recession in 2008-09 and on the establishment drilling of a and

moratorium

deepwater

development of the backlog of GoM projects in an environmentally responsible manner. Under such government policy, we estimate total spending by the GoM offshore oil and natural gas industry to increase by over 70 percent by 2013 from 2010 levels, and capital expenditures to increase by over 140 percent.

subsequent slowdown of permit issuance in both GoM deep and shallow waters in 2010 and into 2011. We estimate that tens of thousands of jobs have been lost in response to the decline in capital

expenditures and operational spending of the offshore GoM oil and natural gas

•

The Gulf of Mexico oil and natural gas industry’s operational and capital investment spending is projected to average $35.7 billion from 2011-2013, with spending estimated at $26.5 billion for the 2008-2010 period. In 2013 spending is projected to reach $41.4 billion, a 71 percent increase from the 2010 level of $24.2 billion.

•

The majority of the Gulf of Mexico oil and natural gas industry’s spending is spent domestically, with an average of 98 percent of industry expenditures occurring within the United States from 2008-2010 and 97 percent expected to be spent domestically from 2011-2013.

•

Direct employment from GoM development expenditures and operations is projected to average 95 thousand from 2011 to 2013, after averaging 75 thousand from 2008-2010, with direct employment reaching a high of nearly 115 thousand by 2013. Total employment supported by the Gulf of Mexico oil and natural gas industry, including indirect and induced (income related) effects, is projected to average nearly 365 thousand jobs from 2011-2013 compared to total estimated employment of 275 thousand from 2008-2010. Employment in 2013 is projected to exceed 430 thousand jobs or a 77 percent increase from 2010.

43

•

The Gulf of Mexico oil and natural gas industry is projected to contribute an average of $38.5 billion a year to U.S. GDP from 2011-2013 as compared to $28.7 billion a year from 2008-2010. In 2013 total contributions to GDP are projected to reach $44.5 billion, or a 71 percent increase over the 2010 estimated level of $26.1 billion. These results are likely conservative because they do not take into account the economic impacts of increased government revenue from bonus bids, royalties, corporate income taxes, and certain profit type income associated with oil and natural gas operations.

•

GDP impacts in the Gulf of Mexico states of Alabama, Louisiana, Mississippi and Texas, due to offshore GoM oil and natural gas industry activity, are projected to average $28.5 billion a year from 2011-2013, as compared to $21.4 billion a year from 2008-2010. Total contributions to GDP in 2013 are expected to have increased 73 percent from 2010 to $33.2 billion due to offshore GoM oil and natural gas industry activity. Total supported employment in the Gulf states due to offshore GoM oil and natural gas industry activity is expected to average 270 thousand jobs from 2011-2013 compared to 210 thousand jobs in the 2008-2010 period. In 2013, total supported employment is expected to grow to 320 thousand jobs, an 80 percent increase over the 2010 level.

•

While spending from the offshore Gulf of Mexico oil and natural gas industry is focused along the Gulf coast, many states see benefits from the industry. NonGulf Coast States are expected to average $9.9 billion in spending from 20112013, compared to an average of $7.2 billion spending per year from 2008-2010. Total supported non-Gulf State employment due to offshore oil and natural gas industry operations is expected to average 94 thousand from 2011-2013, compared to estimated total employment of 67 thousand in the 2008-2010 period.

•

Quest’s forecast for spending and hence contribution’s to GDP and employment for forecast years are predicated on a return to normal permitting activity in the second half of 2011. This may be optimistic given current rates of permitting. A failure to return to historical issuance of drilling permits, as well as implementation of overly excessive regulation, would significantly decrease projections of spending and thus economic and job impacts.

44

•

Quest’s estimated and projected spending are based on Quest’s proprietary Enhanced Deepwater Development Database and thus provide a high degree of accuracy with relation to both spending levels and the locations of spending. This is likely to yield realistic estimates of economic activity both with respect to magnitude and location.

The offshore oil and natural gas industry is a key contributor to the energy supply of the United States; additionally the industry contributes both to the gross national product and overall employment of the

and natural gas industry supports hundreds of thousands of jobs

across multiple sectors and regions, spurs economic growth, and

generates significant tax revenue at all levels of government. therefore critical that It is

country. The offshore GoM industry contributed 14 percent of the oil and natural gas produced in the United States in 2010. Additionally, capital investment and operational

permitting

return to historical rates, and that development and production are allowed to reach their potential in an environmentally responsible manner under a balanced regulatory regime.

Non- Gulf Coast States
California
The results of the study indicate that California has the next largest economic impact (second to the Gulf Coast States) as a result of the Offshore Gulf of Mexico oil and natural gas industry with total

the largest overall state economy.

In

addition, California has had a long historical involvement in oil and natural gas

production. Its base of high tech industries supports a large number of equipment manufacturers and technology providers. Examples Teledyne include companies that such as

Technologies

produce and

contribution to GDP of $1.7 billion in 2010 derived from $1.5 billion in spending. It may seem surprising that the economy of a west coast state would benefit so greatly from oil and natural gas operations in the GoM. However, there are areas where California is directly involved in the offshore oil and natural gas industry, for instance Chevron, a major player in the offshore Gulf of Mexico, is headquartered in San Ramon, California.

sophisticated

electronics

instrumentation for the industry. These types of manufacturers supply components that are used throughout offshore developments in important equipment such as platform topsides and subsea hardware. From an employment perspective, approximately 14 thousand men and women in California were employed due to the offshore Gulf of Mexico oil and natural gas industry in 2010 as a result of spending of $1.5 billion associated with GoM oil and natural gas operations. Notably affected industries in California include real estate with a $262 million impact in 2010, professional scientific and technical services with an $88 million impact, finance and insurance, which sees an $81 million impact and manufacturing with an $85 million impact in 2010. In 2013 total contribution to GDP in California due to GoM oil and natural gas operations is projected to reach $2.6 billion with total related employment estimated to reach over

Source: Quest Offshore Resources, Inc.

22 thousand on spending of $2.3 billion.

In general, the reason GoM oil and natural gas development impacts the California economy is due to California’s standing as

48

Oklahoma
Oklahoma while not directly on the Gulf of Mexico, borders Texas and has historically been heavily involved in oil production both inside the state and through its legacy as one of the historical centers of the oil and natural gas industry. Some of Oklahoma’s involvement the offshore Gulf of Mexico operations is through corporate operations such as ConocoPhillips headquartered in Bartlesville, Oklahoma or through equipment manufacturing, or the ownership of key infrastructure such as Williams Partners, LP; a key owner of pipelines in the Gulf of Mexico.

Williams Oklahoma

Partners

L.P.

–

Tulsa,

The state of Oklahoma sees significant economic and employment due to the Offshore Gulf of Mexico offshore oil and natural gas industry. Total contributions to GDP stood at $1.3 billion in 2010 based on spending of almost $1.2 billion, with total employment impact

Williams Partners L.P. is a leading diversified master limited partnership focused on natural gas transportation; gathering, treating, and processing; storage; natural gas liquid (NGL) fractionation; and oil transportation. Williams operates three natural gas transmission pipelines: With a combined design capacity of more than 12 billion cubic feet per day, these three pipelines transport enough natural gas in one day to serve the needs of more than 30 million homes. Placed into service in May 2002, Gulfstream is a state-of-the-art, 745-mile natural gas delivery network across the Gulf of Mexico. As the Sunshine State's first new natural gas pipeline in more than 40 years, Gulfstream can transport approximately 1.26 billion cubic feet of natural gas each day from vast natural gas reserves to a wide array of customers, including electric utilities, local distribution companies and municipal users.

reaching 12 thousand jobs. Industries such as Real estate which sees employment 11 hundred and over $188 million of

contributions to GDP and finance with supported employment of 500 and over $43 million of contributions to GDP. In 2013 Oklahoma is forecast to see slightly over 2 billion dollars of contributions to GDP from the offshore Gulf of Mexico oil and natural gas industry due to slightly over 1.9 billion dollars of spending, with total employment impact set to reach slightly over 20 thousand jobs, a 60 percent increase from 2010.

Source: Quest Offshore Resources, Inc.

49

Colorado
Colorado, which is home to a large domestic oil and natural gas industry, also benefits through the supply chain from the offshore Gulf of Mexico oil and natural gas industry. In 2010, the total economic impact stood at nearly $1.1 billion, with total employment impact at over 9 thousand jobs based on spending of $1 billion. Job losses from 2008 to 2010 were 680 jobs.

New Mexico
New Mexico which also has a large

domestic oil and natural gas industry felt a total economic impact due to the offshore Gulf of Mexico oil and natural gas industry of $810 million in 2010 due to spending of slightly over $943 million. New Mexico experienced a loss of 700 jobs in 2010 compared to 2008. Key industries include real estate industry

Industries such as real estate with $174 million of economic impact, professional, scientific and technical services with $60 million in impact, and management of companies and enterprises with $52 million in economic impact see the most benefits.

with contributions to GDP of $61 million, the construction industry with contributions to GDP at $37 million, and retail trade with $30 million. 2013 economic impact is predicted to reach $1.3 billion due to $1.5 billion in spending; predicted total to employment 13 impact is

reach

thousand

jobs.

2013 should see total economic impact in Colorado at about $1.8 billion leading to a total employment impact of slightly of 15 thousand jobs due to spending of $1.5 billion.

50

Ohio
Ohio which produces very little oil and natural gas relative to the largest producing states is still a major manufacturer of goods utilized in both the onshore and offshore oil and natural gas industries. Some of the leading members of the oil and natural gas supply chain are based in Ohio. Parker Hannifin corporation which is based out of Cleveland is heavily involved in the offshore Gulf of Mexico oil and Natural gas industry fabricating such items as umbilicals and mooring ropes.

Parker Hannifin – Cleveland, Ohio
Parker Hannifin is the 13 largest Manufacturing Company in Ohio with 9 facilities in the state (including headquarters). Parker Hannifin has operations in 36 states and 153 U.S. cities. With annual sales of $10 billion for fiscal year 2010, Parker Hannifin is the world's leading diversified manufacturer of motion and control technologies and systems, providing precision-engineered solutions for a wide variety of commercial, mobile, industrial and aerospace markets. Parker is a global supplier of umbilicals, subsea power cables and associated termination equipment to the offshore oil & natural gas industry, and the offshore wind turbine industry.
Other top 50 manufacturing companies directly involved in the oil & natural gas supply chain with facilities in Ohio: Siemens, GE, Rockwell Automation, AK Steel Corp., Emerson Electric.
th

The total economic impact of the offshore Gulf of Mexico oil and natural gas industry was $306 million spending of $280 in 2010, based on

million.

Employment

impact stood at 34 hundred jobs.

Impacts to the manufacturing industry stood at $56 million with 750 employed. 2013 total economic impact for Ohio is predicted to reach $530 million based on spending of $476 million, total employment impact in 2013 should reach 6 thousand, a100

Aubert & Duval- Ohio
Aubert & Duval (A&D), a member of the Eramet Group, provides advanced metallurgical solutions in the form of parts or long products required for projects in the most demanding industries including aerospace, energy, industrial tool steels, and motor racing. The Company’s core activity is developing, melting and hot processing (open and closed-die forging and rolling, casting or powder metallurgy) special steels, super alloys, aluminum alloys and titanium alloys which need to meet clients’ stronger specifications.

percent increase on 2009.

51

Arkansas
Arkansas which borders the gulf coast region, sees significant impacts to its

Murphy Oil – El Dorado, Arkansas
Murphy Exploration & Production Company, (Murphy EXPRO) is engaged worldwide in crude oil and natural gas exploration and production. Murphy EXPRO is headquartered in Houston, Texas. Murphy Oil USA, Inc., (MOUSA) is engaged in refining, marketing and transportation of petroleum products in the United States. It is headquartered in El Dorado at Murphy's corporate offices. Murphy’s refining and marketing operations are conducted through whollyowned subsidiaries including Murphy Oil USA. Murphy operates over 1,000 retail natural gas stations in 23 U.S. states under the Murphy USA brand and 93 Murphy Express stations in 11 U.S. states. The company’s refining business includes a 125,000 barrel-a-day refinery in Meraux, Louisiana, which produces refined petroleum products for distribution in the Gulf Coast market, and a 35,000 barrel-aday refinery in Superior, Wisconsin, which serves the Upper Midwest. In 2010 Murphy’s U.S. production was 20,100 barrels of oil per day and 53 million cubic feet of natural gas. Over 60 percent of the production came from just two deepwater Gulf of Mexico fields – Thunder Hawk and Medusa – both of which are expected to see production declines in 2011 due inability to drill new wells. The deepwater Gulf of Mexico remains an integral component of Murphy’s upstream strategy. Murphy moved to the deepwater in 1996 and to date has three major discoveries on production (Habanero, Medusa and Front Runner) and a fourth now in development th at Thunder Hawk. Murphy is the 16 largest leaseholder in deepwater Gulf of Mexico (>500fsw) with 113 operated leases and 57 leases as partner.

economy due to the offshore Gulf of Mexico oil and natural gas industry. Total economic impact in 2010 reached $273 million, with the industry accounting for over 3 thousand jobs based on spending of $300 million.

In 2013 spending levels are set to reach over $472 million in Arkansas, which should see total economic impact reach $430 million. Total employment impact is

predicted to reach slightly over 4 thousand.

Alaska
Alaska though very distant from the Gulf Coast and the offshore Gulf of Mexico oil and natural gas industry, still sees significant economic impact from the industry due to its links to the oil and natural gas industry as a whole based on its significance as one of the leading oil and natural gas producing states in the country. Total economic impact in 2010 was $262 million based on spending of $291 million. Total employment impact was slightly under 2 thousand jobs.

2013 should see spending levels in Alaska reach $455 million, with total economic impact reaching $404 million; due to this spending total employment impact is

predicted to reach slightly over 3 thousand jobs, a gain of 200 jobs on 2010.

52

Pennsylvania
Pennsylvania, due to its legacy as both a key manufacturing state for the United States and its past (and now growing) involvement in the oil and natural gas industry, saw spending due to the offshore Gulf of Mexico oil and natural gas industry of $170 million in 2010.

Whitehill Manufacturing- PA
Whitehill supplies mooring lines for the navy, oil tankers and drilling rigs and floating production units. Whitehill can be described as a differentiated niche player in the high performance rope arena. Many of their competitors produce high volume, low cost products for general use. Whitehill focuses its efforts and expertise on demanding projects that require high quality materials, engineering precision and technical support. These problem-solving projects often involve developing new technical solutions for existing industries using a unique engineering experience with high performance synthetic fibers. Whitehill's competitive advantage is their experience with high performance synthetic materials. Whitehill has invented and reinvented high performance rope with new fibers, new designs and new concepts supported with rigorous testing to meet the changing requirements of evolving applications. Offshore rigs and floating units are very reliant on these products.

Total economic impact stood at $200 million with total employment impact of 2 thousand jobs. In 2013, total economic impact is predicted to reach $404 million based on spending of $341 million. Total employment impact in 2013 is predicted to reach slightly over 4 thousand jobs, a two fold increase on 2010.

Kansas
Offshore Gulf of Mexico oil and natural gas spending for Kansas stood at $190 million for 2010, leading to a total economic impact of $170 million. Total employment impact was 15 hundred jobs.

United States Pennsylvania

Steel

–

Pittsburgh,

The industry contributed $16 million to Kansas’s real estate industry in 2010. In 2013 spending for Kansas is predicted to reach $292 million leading to a total economic impact of $266 million and a total employment impact of impact of 25 hundred.

U.S. Steel is an integrated steel producer with major production operations in the United States, Canada and Central Europe and an annual raw steel-making capability of 31.7 million net tons. The company manufactures a wide range of value-added steel sheet and tubular products for the automotive, appliance, container, industrial machinery, construction, and oil and natural gas industries. U.S. Steel is the ninth largest fortune 500 company in Pennsylvania and one of the few fully integrated steel manufacturers left in the United States. In 2010 U.S. Steel revenues were $17.4BN. U. S. Steel Tubular Products manufactures quality tubular products for the energy industry including drill pipe for offshore applications. Major product lines include oil country tubing, casing and drill pipe, standard and line pipe, and coupling stock. Tubular Products are manufactured in Alabama, Ohio, Texas and Pennsylvania.

53

Wyoming
Wyoming, though very distant from the Gulf of Mexico offshore oil and natural gas industry geographically still received leading to a total economic impact of $254 million and a total employment impact of 3 thousand jobs.

spending of almost $186 million in 2010. This spending was responsible for a total economic impact of $161 million and a total employment impact of almost 12 hundred jobs.

Utah
Utah, while relatively distant geographically from the Gulf of Mexico has a strong domestic oil and natural gas industry

In 2013 total economic impact for Wyoming is expected to reach $248 million dollars on spending of $291 million leading to an employment thousand. impact of slightly over 2

through which it is connected to the offshore Gulf of Mexico oil and natural gas supply chain.

Spending in 2010 due to the industry stood at $83 million leading to a total economic impact of $96 million. Total employment impact was at slightly under 1 thousand jobs.

Illinois
In 2010 Illinois saw a total economic impact due to the offshore Gulf of Mexico oil and natural gas industry of $124 million based on spending of $104 million. Total

employment impact in 2010 stood at 13 hundred jobs. In 2013 industry growth should lead to spending of $213 million,

In 2013, total economic is predicted to rise to $150 million based on spending of $130 million with total employment impact

West Virginia
West Virginia, though traditionally seen as a coal state, also is involved in oil and natural gas production domestically and with the overall oil and natural gas supply chain. Through this West Virginia saw total The Office of Research and Development (ORD) provides DOE's Fossil Energy R&D program an onsite "corporate laboratory" at NETL. The onsite R&D efforts utilize state-of-the-art capabilities and facilities in Morgantown, WV. About one-quarter of NETL's approximately 1,100 Federal and contractor employees are involved with onsite research activity. Because NETL is DOE's only government-owned, government-operated (GOGO) national laboratory, the onsite research program has a core group of about 150 Federal scientists and engineers. One of DOE's primary strategic goals is “to protect our national and economic security by promoting a diverse supply and delivery of reliable, affordable, and environmentally sound energy.” NETL contributes to this strategic goal through cutting-edge research and development, focused on the clean production and use of the Nation's domestic fossil energy resources. Advanced technologies provide policymakers with expanded options for meeting vital national energy, environmental, and security needs.

U.S. DOE National Energy Tech LabsWV

economic impact due to the offshore Gulf of Mexico oil and natural gas industry of $95 million in 2010.

Total employment impact was 1 thousand jobs. In 2013, total economic impact should reach $150 million, with total employment impact at 15 hundred jobs due to spending of $168 million.

55

Kentucky Kentucky’s portion of Offshore Gulf of
Mexico oil and natural gas spending was at $74 million in 2010, leading to a total economic impact of $71 million and a total employment impact of 800 jobs. In 2013

General Cable – Highland Heights, Kentucky
General Cable is a leader in the development, design, manufacture, marketing and distribution of copper, aluminum and fiber optic wire and cable products for the energy, industrial, specialty and communications markets. General Cable is the fifth largest company in Kentucky. The company is present in 13 U.S. states and 19 U.S. cities. In 2010 General Cable had $4.9BN in sales. General Cable is one of few experienced global manufacturers with the technical expertise, material science and processing and testing capabilities called upon to service the Oil, Natural gas & Petrochemical (OGP) market. General Cable offers the most comprehensive line of specialty IEEE, IEC, Industrial and Communications wire and cable solutions tested and certified on both a global and regional scale. With years of industry knowledge and insight, General Cable engineers exclusive designs to meet product and application specifications and withstand demanding environments. Our ongoing technology effort delivers new solutions that continue to advance the drilling, exploration, production and refining of natural resources for Oil, Natural gas & Petrochemical (OGP) markets globally.

total economic impact should reach about $121 million, while total employment impact is expected to reach 15 hundred jobs.

Virginia
In Virginia, which has often been seen as a possible location for future offshore

production, the effects of the offshore Gulf of Mexico oil and natural gas industry are still felt despite its distance from the centers of production. In 2010 Virginia spending from the offshore Gulf of Mexico oil and natural gas industry was at $65 million, with total economic impact of $67 million and total employment impact of 600 jobs.

In 2013 growth in the industry should see spending into Virginia reach $102 million leading to a total economic impact of $105 million and a total employment impact of 1 thousand jobs.

56

Missouri
Missouri’s share of Offshore Gulf of Mexico oil and natural gas spending was $43 million in 2010, leading to a total economic impact of $43 million and a total employment impact of 500 jobs. In 2013 total economic impact should reach about $80 million, while total employment impact is expected to reach 1 thousand jobs.

Emerson Electric – St. Louis, Missouri
Emerson is a diversified global manufacturing and technology company that offers a wide range of products and services in the industrial, commercial, and consumer markets through its network power, process management, industrial automation, climate technologies, and tools and storage businesses. Recognized widely for its engineering capabilities and management excellence, Emerson has approximately 127,700 employees and 240 manufacturing locations worldwide. In 2010 Emerson had revenues of $21BN including $1.3MM attributed to U.S. exports. The company spends nearly $500MM annually in research and development. Emerson is the second largest company in Missouri and the largest Fortune 500 Company in Electrical Equipment. Emerson is the leading U.S. based provider of process management solutions, topsides automation and network power for offshore platforms, rigs and floating production systems. In 2009 Emerson acquired the Norwegian based subsea metering specialists Roxar ASA. The deal creates the world’s first integrated automation solutions company whose products span from subsea oil and natural gas reservoirs, to platform and floating production, to transmission, and ultimately through refining and production of goods .

Florida
Florida, despite being geographically on the Gulf of Mexico coast does not produce significant amounts of oil and natural gas offshore. Relative to its closeness to the producing region Florida has little

involvement in the oil and natural gas industries both on and offshore. However some key suppliers to the oil and natural gas industry have a presence in the state, such as Oceaneering International which

operates an umbilical manufacturing plant in Panama City, Florida.

Oceaneering - Panama City, FL
Despite this, Florida still sees the impacts of the offshore Gulf of Mexico oil and natural gas industry. Total economic impact in 2010 stood at $42 million derived from spending of $44 million. Total employment impact in 2010 stood at 600 jobs, which should reach 13 hundred jobs in 2013. Total spending in 2013 is forecasted to be $98 million leading to a total economic impact of about $91 million. Oceaneering is a global oilfield provider of engineered services and products, primarily to the offshore oil and natural gas industry, with a focus on deepwater applications. Oceaneering is a leading provider of Remotely Operated Vehicles as well as subsea production umbilicals. Oceaneering operates and umbilical manufacturing plant in Panama City, FL.

Wisconsin
In 2010 Wisconsin had a total economic impact of $41 million due to the offshore Gulf of Mexico oil and natural gas industry spending. Employment Impact from the industry was 600 jobs with expectations to reach 12 hundred by 2013. Predicted spending of $88 million should lead to a total economic impact of about $ 90 million in 2013.

Rockwell Automation – Milwaukee, Wisconsin
Rockwell Automation is the 8 largest company in Wisconsin with 2010 revenues of nearly $5BN. The company is present in 33 states and 49 U.S. cities. Rockwell is the second leading U.S. based provider of process and control solutions for large manufacturing facilities. The company spends nearly $200MM annually on research and development. Rockwell’s Integrated Architecture Solutions, provides sequential, process and power control in one architecture for seamless information flow from production fields and platforms. These advanced technologies enable the safe operations of large fields in complex environments where 24/7 monitoring is required.
th

Michigan
Michigan received spending of $34 million due to the offshore Gulf of Mexico oil and natural gas industry in 2010; this led to a total economic impact of $38 million. Total employment impact of 400 jobs was felt. In 2013 total economic impact is expected to reach $67 million on spending of $61 million, with total employment impact at 700 jobs.

Dow Chemical Corporation - Midland, Michigan
Dow Chemical is the third largest company in Michigan (the largest non-auto manufacturing company in the state). The company ranks 46 on the fortune 500. Dow is present in 24 U.S. states with roughly 24 thousand U.S. based employees. Dow’s diversified industry-leading portfolio of specialty chemical, advanced materials, agrosciences and plastics businesses delivers a broad range of technology-based products and solutions to customers in approximately 160 countries and in high growth sectors such as electronics, water, energy, coatings and agriculture. Dow Oil & Natural gas is a business unit of The Dow Chemical Company and its consolidated subsidiaries combining Dow’s experience in the chemicals industry with their knowledge of the energy business. As a leading expert in materials science Dow provides essential knowledge around insulation and coatings for deepwater pipelines and subsea equipment.

R.M. Young Company- MI The company has 40 years of experience in manufacturing meteorological instruments, and provides sensors for many unique applications. The company provides meteorological instruments that are used on offshore vessels, drilling rigs and platforms.

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Nebraska
Nebraska received spending due to the offshore Gulf of Mexico oil and natural gas industry of $44 million in 2010. This spending led to a total economic impact of about $33 million and a total employment impact of 500 jobs. In 2013 spending is predicted to rise to $80 million dollars, leading to a total economic impact of $60 million and a total employment impact of 900 jobs.

Peter Kiewit Nebraska

Sons

–

Omaha,

Kiewit is one of North America's largest and most respected construction and mining organizations. For over 125 years, Kiewit has delivered world-class solutions to projects of every size, in th every market. Kiewit is the 4 largest company in Nebraska with just under $10BN in annual revenues. The company is present in 19 U.S. states and 29 U.S. cities. Through their subsidiary Kiewit Offshore Services, Ltd., the company fabricates large, complex offshore oil production platforms at their 400-acre fabrication facility in Ingleside, Texas. Kiewit builds fixed and floating structures for most of the world's major oil companies. Kiewit has extensive experience in the fabrication, erection and construction of offshore jackets and decks; concrete gravity base structures; oil and natural gas processing units; well heads, flow lines and flow stations; pipelines and compressor stations; and enhanced oilrecovery facilities.

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Indiana
Indiana received spending of $24 million in 2010 from the offshore Gulf of Mexico oil and natural gas industry leading to a total economic impact of $24 million and a total employment impact of 300 jobs. In 2013 growth in spending to $62 million will lead to a total economic impact of about $63 million and total employment impact of 900 jobs, a threefold increase from 2010.

Cummins, Inc. – Columbus, Indiana
Cummins Inc., a global power leader, is a corporation that designs, manufacture, distributes and services engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Cummins serves customers in approximately 190 countries and territories.. Cummins reported net income of $428 million on sales of $10.8 billion in 2009. Cummins is the third largest fortune 500 company in Indiana. The company is present in 13 U.S. states and 22 U.S. cities. Cummins is a leading supplier of engines and generators for offshore drilling and production units in addition to power supply solutions for well servicing, pressure pumping, and natural gas compression.

Trelleborg- Indiana
The company offers customized and standard sealing solutions for the Construction, Industrial and Transport sectors mainly in Europe and North America Using their extensive application knowledge coupled with state-of-the-art design and tooling technology Trelleborg provides optimized sealing solutions to meet customer needs. Trelleborg offer profiles from a comprehensive range of elastomer and thermoplastic materials including multicomponent composite solutions. Supported by the polymer materials expertise available within Trelleborg can offer a full range of materials, surface treatments and fabrication techniques for use in the oil and natural gas industry.

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New Jersey
In 2010, spending by the offshore Gulf of Mexico oil and natural gas industry in New Jersey was $15 million, leading to a total economic impact of over $15 million and a total employment impact of 200 jobs. In 2013 spending should rise to $42 million leading to a total economic impact of $41 million and a total employment impact of 500 jobs .

Honeywell International – Morristown, New Jersey
Honeywell is the 4 largest Fortune 500 th Company in New Jersey and the 6 largest U.S. Aerospace and Defense Contractor. Honeywell invents and manufactures technologies to address tough challenges linked to global macro trends such as safety, security, and energy. In 2010 Honeywell spent $1.5BN in research and development. The company has approximately 122,000 employees worldwide, including more than 19,000 engineers and scientists. Nearly 50 percent of the workforce is based in the U.S. Honeywell operates through four distinct business units: Aerospace, Transportation Systems, Automation & Control Solutions, and Specialty Materials. Honeywell’s key roles in the offshore oil & natural gas market include topside control systems, safety & security systems, and high performance fibers. The ACS business unit provides topside control systems & safety/security systems for floating production platforms and drilling rigs. Specialty Materials provides advanced fibers and coatings for deepwater mooring ropes, slings, and installation work ropes.
th

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New York
New York State received $12 million of spending due to the offshore Gulf of Mexico oil and natural gas industry in 2010, this spending led to a total economic impact of $11 million and a total employment impact of 85 jobs. In 2013 spending is set to rise to $23 million leading to a total economic impact of $21 million and a total employment impact of 156 jobs.

Pall Subsea Division- Port Washington, NY Pall Corporation is a technology leader in the $48 billion global filtration, separation and purification industry. Pall has become a $2.4 billion company by solving complex fluid management challenges for diverse customers around the world. Revenues are almost evenly split between the Industrial and Life Sciences markets.
Pall Corp is a leading provider of topsides fluid processing and separation equipment to the oil and natural gas industry. Pall corp’s equipment is deployed on drilling rigs, floating production units and fixed platforms to enable the separation of fluids for environmental and commercial purposes. Their water filtrations systems are also deployed on subsea components offshore.

Hess Corporation – New York, New York
Hess Corporation is a fully integrated energy company engaged in exploration and production of crude oil and natural gas, as well as the refining and marketing of petroleum products, natural gas and electricity. Hess operates 1,350 natural gas and retail stores serving 1.3MM customers per day in 16 states along the th East Coast USA. Hess is the 13 largest Fortune 500 Company in New York City. The company offices can be found in 8 U.S. states and 11 U.S. cities. In 2010 Hess produced domestically (U.S.) 89,000 barrels of crude and natural gas liquids per day and 108 million cubic feet of natural gas per day. Roughly 70 percent of Hess crude and natural gas liquid production comes from offshore while 50 percent of natural gas production comes from offshore fields. The company spends roughly $3BN per year on U.S. exploration and production activities. Hess is one of a few large independent oil companies that play an active role in exploration and production of deepwater Gulf of Mexico. The company is the ninth largest leaseholder in deepwater (>500fsw) with 237 operated leases and 58 leases as partner.

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Montana
Montana has a large domestic oil and natural gas industry and thus sees a relatively small percentage of its oil and natural gas industry spending from the offshore Gulf of Mexico. In 2010 total spending in Montana was at $12 million, leading to a total economic impact of $11 million dollars and total employment impact of 100 jobs.

2010 leading to a total economic impact of $9 million. Total employment impact stood at 90 jobs.

Due to increasing spending levels total economic impact is projected to reach $14 million in 2013, with total employment impact expected to reach 100 jobs from spending of $17 million.

Tennessee
In 2013 spending should rise to $19 million, with a total economic impact of $17 million and a total employment impact of 150 jobs. In 2010 offshore Gulf of Mexico oil and natural gas spending in Tennessee was $8 million, total economic impact of this

spending stood at $9 million while total

North Dakota
North Dakota has significant domestic oil and natural gas production and as such sees very little of its substantial oil and natural gas related domestic product derived from the offshore Gulf of Mexico oil and natural gas industry. However, through its involvement in the oil and natural gas supply chain still saw spending of $11 million in

employment impact was at 100 jobs.

In 2013 due to growth in the offshore Gulf of Mexico oil and natural gas industry,

spending in Tennessee is expected to reach $12 million leading to a total economic impact of $13 million while total employment impact is expected to reach 150 jobs.

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Minnesota
In 2010, spending by the offshore Gulf of Mexico oil and natural gas industry in Minnesota was $4 million, leading to a total economic impact of over $4 million and a total employment impact of 60 jobs. In 2013 spending should rise to $13 million dollars leading to a total economic impact of over $13 million and a total employment impact of 200 jobs.

3M Corporation – St. Paul, Minnesota
3M is the largest publicly held manufacturing company in Minnesota which is home base to the world renowned 3M Corporate Research Labs. The company has 33,000 U.S. employees including 3,700 scientific researchers and an annual R&D budget of $1.5BN including $20MM on pure scientific research. With nearly $25 billion dollars in annual revenues and 74 manufacturing facilities across 27 US states 3M Corporation is one of America’s most notable innovation leaders. Though widely known as the company that introduced the “sticky-note”, 3M has also been supplying products to the Oil and Natural gas business for over 50 years. Today, nearly 10,000 3M products are available into every corner of the industry – from exploration and production to transportation, refining and marketing. 3M’s key enabling contribution to the deepwater sector is the advanced material solutions for syntactic foams used to insulate pipelines in water-depths with extreme pressures and temperatures such as the Gulf of Mexico.

South Dakota
In 2010 offshore Gulf of Mexico oil and natural gas spending in South Dakota was $3 million, total economic impact of this spending stood at $2 million while total employment impact was at 15 jobs in 2010.

In 2013 due to growth in the offshore Gulf of Mexico oil and natural gas industry,

spending in South Dakota is expected to reach $4.5 million leading to a total

economic impact of over $3 million while total employment impact is expected to reach 25 jobs.

Idaho
Idaho felt and economic impact of $1 million in 2010 due to the offshore Gulf of Mexico oil and natural gas industry based on spending of $2 million, total employment impact stood at 20 jobs. In 2013 spending should reach $2 million leading to a total economic impact of $2 million and a total employment impact of 30 jobs.

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Other States
The total offshore Gulf of Mexico oil and natural gas industry spending for the

APS Technology- CT
APS Technology, Inc. specializes in the design, development and manufacture of electromechanical, instrumentation, sensor, and software designs for the oilfield and other harsh environments. APS has engineering expertise in oilfield drilling and sensor equipment, shock and vibration isolation designs, and stress analysis for static and rotating conditions. APS's customers include all of the major integrated multinational oilfield service companies, independent directional drilling companies, MWD service companies and oilfield companies engaged in non-drilling related services. APS also provides engineering analysis, product development services, and proprietary products to customers worldwide.

remaining states, as well as their total contributions to GDP and employment is listed below (Table 15). The remaining nonGulf States include, Nevada, Oregon, North Carolina, Maine, Arizona, Massachusetts, Hawaii, Connecticut, Delaware, Georgia, Iowa, Maryland, New Hampshire, Rhode Island, South Carolina, Vermont, and

Life-Cycle of a Field Development
The domestic offshore oil and natural gas industry provides vital energy for the U.S. economy. However, developing offshore oil and natural gas resources is significantly more challenging than their land-based counterparts. These challenges only

activities and practices the industry must engage in to provide offshore oil and natural gas production. This section outlines all of the major steps that a typical project must go through from initial resource appraisal to production

(Figure 16). The review also discusses the relevant pieces of equipment at the reservoir level, the sea floor, and at the water surface.

increase with increasing water depth. The purpose of this section is to give the reader a better understanding of the necessary

Every potential offshore oilfield development project goes through a “life-cycle”. What follows is a walk-through of this cycle to provide an understanding of the functioning and process of the offshore oil and natural gas industry via a typical offshore oilfield development plan. This plan essentially involves deciding the equipment pieces and infrastructure that will be needed to produce the wells and transport resources back to shore, and where these pieces of equipment will be placed to optimize production.

The typical field development plan moves through predetermined stages – the

terminology may vary from operator to operator, but the steps are generally the same. These six stages outline the main

processes every offshore oil and natural gas development goes through in order to become a producing asset. A review of

what actions are undertaken during each stage provides insight into the operational plans of offshore oil companies operating in the U.S.

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Stage 1: Assessment, Exploration, Appraisal and Definition

During Appraisal

the

“Assessment, Definition”

Exploration, stage, oil

G&G Assessment
The first stage in developing an offshore oil and natural gas field is finding out where these resources may be present. To do this, the industry relies on specialized seismic contractors who provide imaging and data of the geologic formations below the GoM’s seafloor.

and

companies engage in the evaluation and appraisal of potential oil and natural gas targets. conducted Seismic to locate surveys must be

promising

areas.

Exploration wells must be drilled to further determine the size and extent of the potential field.

Figure 15: Seismic Vessel

Source: Quest Offshore Resources, Inc.
These seismic contractors own and operate a fleet of boats that use acoustic imaging techniques formations to lying assess beneath the the geological seafloor have leased. These boats, or vessels, are highly specialized pieces of equipment that play a pivotal role in the acquisition of this information.

(Figure 17). Operations typically involve a vessel towing “streamers” which are sensors used to send and receive electromagnetic waves in a set pattern throughout a defined area which normally encompasses a group of standardized “blocks” which operators The seismic images and data captured by these vessels provide critical information to properly trained eyes. According to the physical composition of these formations, geologists, geoscientists, and other experts 69

will then determine the areas in which oil and natural gas may be present. If a

legs

that

can

be

raised

or

lowered

independently of each other (Figure 18). The jack-up is towed onto location with its legs up and the barge section floating on the water. Upon arrival at the drilling location, the legs are jacked down onto the seafloor, preloaded to securely drive them into the

potential oil or natural gas target looks promising, the oil company that owns the federal offshore plan lease which will create an the

exploration

involves

scheduling of exploration wells.

Exploration Drilling
Direct physical evaluation of formations, or reservoirs, is accomplished by drilling

Figure 16: Jack-up Drilling Rig

exploration wells. In general terms, an exploration well is viewed as a “sample” production well. This exploration well will allow companies to determine
2 3 1

if oil or

natural gas is present, the quality of the product and the potential size of the Offshore

formation (or “drilling target”).

drilling contractors have been vital to the industry since the first underwater well was drilled beneath a lake in Louisiana in the 1910s. These contractors own and operate a sophisticated fleet of offshore drilling rigs whose equipment specifications are relevant to the intended water depth in which these drilling rigs will be used.

Source: Quest Offshore Resources, Inc.
sea bottom, and then all three legs are jacked further down. Since the legs have

In general, the industry’s fleet of offshore drilling rigs can subdivided between shallow water rigs (often referred to as “Jackups”) and deepwater rigs (floating Mobile offshore drilling units, or MODUs).

been preloaded and will not penetrate the seafloor further, this jacking down of the legs has the effect of raising the jacking

mechanism, which is attached to the barge and drilling package. In this manner, the entire barge and drilling structure are slowly

Jack-up Drilling Rig
A jack-up rig is a combination of a drilling rig and floating barge, fitted with long support

raised above the water to a predetermined height above the water. Wave, tidal and current loading acts only on the relatively small legs and not the bulky barge and

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drilling package. From March 2009- March 2011 there was an average of 39 jack-up drilling rigs working in the Gulf of Mexico,

while in the same period and average of 301 were working in the rest of the world (Table 15).

Source: Quest Offshore Resources, Inc. Drillship
A drillship is a maritime vessel modified to include a drilling rig and special stationkeeping equipment. The vessel is typically capable of operating in deep water. A drillship must stay relatively stationary on location in the water for extended periods of time. This positioning may be accomplished with multiple anchors, dynamic propulsion (thrusters) or a combination of these. primarily on large pontoon-like structures submerged below the sea surface. The operating decks are elevated perhaps 100 or more feet above the pontoons on large steel columns. This design has the

advantage of submerging most of the area of components in contact with the sea and minimizing loading from waves and wind. Semisubmersibles can operate in a wide range of water depths, including ultra deep water. They are usually anchored with six to twelve anchors tethered by strong chains and wire cables, to which are station computer keeping

Drillships typically carry larger payloads than semisubmersible drilling vessels (discussed below), but their motion characteristics are usually inferior. An average of 7 drillships have been in service in the U.S. GoM from March 2009-2011 compared to an average of 40 in the rest of the world.

controlled (mooring

maintain

systems).

Semisubmersibles

(called semi-subs or simply semis) can be used for drilling, work over operations, and

Semisubmersible Drilling Rig
A semisubmersible drilling rig is a particular type of floating vessel that is supported

production platforms, depending on the equipment with which they are equipped. On average 21 semi-submersible drilling rigs

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have been in service in the U.S. GoM from March 2009-2011 compared to an average of 138 in the rest of the world.

Figure 17: Drillship Drilling Well

Drilling the Well
Once the appropriate drilling target has been located, and a suitable drilling rig has been contracted, the operator will then engage in a drilling campaign to explore the potential formation found in the G&G process. This process is performed under some of the most technically advanced and challenging conditions in the world. Whether drilling a well in shallow waters or the ever complex deepwater, drilling contractors are aiming at a target that is often many miles from the drilling rig; averaging between 15 thousand and 30 thousand feet below the subsurface (beneath the ocean floor). Once the target depth is reached, the drilling contractor will allow the well to flow briefly in A drill bit surrounded by an outer pipe is sent thousands of feet below the waterline to penetrate the Earth’s surface at the sea floor (Figure 19). The drilling contractor continues to feed more and more pipe through the rig, while the drill bit churns deeper and deeper, until the targeted depth is reached. order to collect some oil for further Products consumed in this period include drill pipe, drilling mud, and other supplies such as food and fuel which are transported by specialized supply ships from shore bases located along the Gulf Coast.

Source: Quest Offshore Resources, Inc.

assessment (a drill stem test). Once an adequate quantity is produced, the drilling contractor will then temporarily plug the well until the operator is able to make a decision on the commerciality of the well.

Field Definition
Approximately 125 crew men are on the rig at any given time. The crew consists of a mixture of personnel from the drilling The “define” stage is very important, as it sets the foundation for if and how a field is developed. data and The operating company uses information collected during

contractor such as rough necks (manual laborers), drillers, and support staff and people from the operating oil company and other various contractors. Most employees work on a rotational schedule with two weeks offshore followed by two weeks off.

exploration and appraisal drilling to define the layout and physical composition of the oil and natural gas resources in place.

72

Flow tests during exploration drilling are very important because they determine how easily oil and natural gas flows throughout the reservoir. Operators consider the

determine the commercial viability of the field. If the field is deemed economic,

further development plans are made in the “concept selection" phase of field

estimated recoverable amount of resource in place and apply financial models to

development.

Stage 2: Concept Selection

During the “concept selection” stage, the operating oil company and its partners work together to develop an optimal plan for developing an offshore field or well. During this stage, the companies will consider different concepts for how to best develop the field in a manner that adheres to any and all regulations and is efficiently

components

that

are

used

in

the

development of these resources. This stage of development is primarily undertaken by engineers and their support staff working in both the major oil and natural gas centers such as Houston, Texas or in the

headquarters location of

the company.

Contract engineers also contribute to this process as do contractors throughout the country who provide information to the oil

profitable to all parties.

Often included in this stage are discussions around whether or not the field is large enough to require its own in-field host / processing facility (a stand alone, fixed platform, or floating platform). This stage is also where the companies will decide how many wells to drill offshore, optimize well placement, the pipeline needs and designs, as well as determining the quantity and location of other equipment to be placed on the seafloor.

companies on the products they can supply and how these could fit into the

development.

Shallow Water Fields
In general, there are few options available to fields that will require a host facility. For shallow water fields, the primary choice is the employment of a fixed platform – or a steel jacketed structure that is physically attached to the seafloor.

What follows is a concise overview of the various equipment and oil field infrastructure

While these fields require less technical difficulty than their deepwater counterparts, they account for a very large portion of the 73

GoM’s production. Most of the Gulf’s fixed platforms consist of the fixed platform, surface wells and export pipelines. On

average from 2008-2013, 63 fixed platforms are expected to be installed in the Gulf of Mexico per year (Table 16).

Table 17: Estimated Historical and Projected Number of Platforms Installed in the Gulf of Mexico by Year (2008-2013)*
Year 2008 2009 2010 2011 2012 Number of Platforms Installed 72 27 23 90 83

The surface wells are all controlled from the platform topsides and allow for easier access to the reservoir to ensure the field maintains its desired production rates. Once production reaches the platform, the

of the hull according to the engineered design using heavy equipment such as cranes.

A platform’s weight can vary widely from a few thousand tons to tens of thousands of tons depending on the size of the field and amount of production expected. The

processed liquid is then transported via underwater pipeline (export pipeline) back to shore to be refined into the multitude of components for which the final product is used.

“topsides” are where the actual processing of the produced fluids (which normally includes water, oil and natural gas in

Most of the platforms utilized in the Gulf of Mexico are fabricated in shipyards along the gulf coast. Being near to the water allows for ease of transportation as these are often either towed out or placed on barges. In the shipyards workers such as welders and machinists assemble steel into the sections

addition to other impurities) takes place, as well as the drilling in the case of most fixed platforms. These are assembled in

shipyards from steel, piping, and other components such as separation units, power supply units, and drilling equipment which is sourced from throughout the country.

74

Figure 18: Types of Production Platforms / Floating Production Units Used in the Gulf of Mexico

Source: Quest Offshore Resources, Inc. Deepwater Fields: Facilities
In deepwater environments, the application of a fixed platform is unfeasible. The practical limit is 1,000 feet. Therefore in deep water, operators must use floating hosts or “floating The FPS production solutions systems” that are Spar platforms are long cylindrical hulled platforms with the length and weight of the hull providing enough stability necessary to conduct drilling operations. Due to the length of the hull, the hull must be towed out to the field horizontally and righted at the field. Therefore, topsides must be lifted and integrated onto the platform offshore. Semi-submersible platforms, which are often utilized for the largest projects in the Tension-Leg Platforms are very buoyant platforms either with three or four columns which are moored to the sea bottom via multiple steel tendons. These tendons are shorter than the distance the platform would settle at if it was not moored to the sea floor; this leads the platform to be very stable and prevents vertical and horizontal movement offshore Gulf of Mexico normally consist of four columns on pontoons with a large deck built on top. The arrangement leads to a large topside area. The lower part of the hull sits below the water level while the upper part sits above the waterline, this can be actively adjusted via the movement of water thus allowing drilling operations to be conducted from the platform.

(FPS’s).

currently available are the Tension-Leg Platform (TLP), the SPAR, and the in Semispecific

into and out of the tanks which are inside the pontoons at the bottom of the hull.

Deepwater Fields: SURF Equipment
Equipment below the water line and at the seafloor is generally referred to as the

Floating production storage and offloading units (FPSO) are a technology that is rare in the Gulf, with only one existing unit which is due to start up this year. These are of a simpler design, which basically constitutes a strengthened oil tanker with production topsides. This allows for the export of oil without a pipeline and thus makes it more common in less developed regions where less infrastructure is in place.

“SURF” market, where SURF stands for

Subsea, Umbilicals, Risers and Flowlines.
These technologically advanced components tie together to power and transport the production back to the surface facility for thorough processing review of and each delivery. of A

these

components is provided below.

Subsea
While subsea equipment is used as a “catch all” for a large portion of the equipment on the sea floor, the most critical component of subsea production equipment is the subsea “Christmas tree,” or tree. The tree and control pod is a highly technical piece of equipment that sits on top of the well and allows for the control of each well’s

Most hulls for floating production units are fabricated in foreign shipyards due to the lack of suitable facilities in the United States. Fabrication of Topsides for floating platforms is done almost exclusively in Shipyards in the United States. The topsides are more complex and highly engineered than the platform hulls though, leading to more spending from floating production platforms in the country versus overseas.

production and performance. (Figure 21) From 2008-2013, an average of 60 subsea trees are expected to be installed per year (Table 17).

Table 18: Estimated Historical and Projected Number of Subsea Trees Installed in the Gulf of Mexico by Year (2008-2013)*
Year 2008 2009 2010 2011 2012 2013 Number of Trees Installed 79 87 79 46 22 30

Source: Quest Offshore Resources, Inc.
These pieces of equipment are of a fairly standard composition from a general

•

standpoint, but differ greatly from oilfield to oilfield. However, all trees serve as the primary access point to the reservoir(s) being produced on a field. Operating oil companies often access a well via the subsea tree to performing operating

Pipeline End Termination (PLET): a connection point between a pipeline and a subsea tree or manifold Jumper: short, pipeline-like link connecting a PLET or manifold to a pipeline Flying Lead: short-range connector of power (electric or hydraulic) to subsea tree(s)
the specific component, in the the

•

•

maintenance operations to ensure a safe and productive flow of liquids from the well.

Whatever pieces of

Other components included in the broader “subsea” equipment category include the various pieces of connection machinery. These include:

equipment

“Subsea”

category of SURF all serve to connect and control production from the well to the infrastructure and / or equipment that will transport the produced product.

•

Manifold: A central collection point for multiple subsea wells. A manifold is then connected to a pipeline to transport production to the host location

Subsea equipment utilized in the U.S. Gulf of Mexico is almost exclusively

manufactured inside the Unites States, with

77

all the contractors involved (including foreign companies) maintaining factories and shore bases to serve the U.S. Gulf of Mexico. This activity provides large levels of spending due to their high value and complexity into not only the key states where these are primarily Louisiana, physically and located but (Texas, also

Moreover, in addition to providing the electrical or hydraulic power for the subsea trees, these cables also carry various chemicals that are injected into a well to enhance production and inhibit the formation of hydrates that can block the flow of liquids through the well. This optimization is called flow assurance.

Alabama)

throughout the country due to companies which as subcontractors supply components to the industry. The umbilicals often require a large amount of engineering to ensure there is no negative interaction between the power and other

Umbilicals
The umbilical performs functions that are required to provide power and fluids to the entire subsea production system. These

functions in a single umbilical. Additionally, as umbilicals increase in the number of functions contained in a single line, the installation of that line becomes increasingly difficult – requiring extensive installation

Figure 20: Umbilical Cross Section

engineering to ensure that the unit is not damaged before coming online. These installation specialized operations and also require marine

expensive

construction and installation equipment.

Risers & Flowlines
The “R” (risers) and “F” (flowlines) portions of the SURF market refer to the pipelines

Source: Quest Offshore Resources, Inc.
“cables” are often very complex and

needed for any offshore oilfield (the term flowlines is used interchangeably with

pipelines). Both segments refer to the pipeline transportation system of an oilfield (Figure 23).

Source: Quest Offshore Resources, Inc.
The risers are pipelines that are run vertically to connect the production facility at the surface with the subsea hardware and equipment on the seafloor. While at first glance the riser pipelines may seem fairly rudimentary in terms of technology, these pieces of equipment are actually very highly engineered. Since risers run through the entire depth of the water column, these lines are subject to a great deal of environmental conditions with on the any potential offshore to oil Fortunately, the industry has – through exhaustive and ongoing research and simple terms, these loop currents create excess force in underwater currents, which often hit riser pipelines directly. As these forces exert themselves on the riser, the pipeline has no choice but to experience some movement as a result. As stands to reason, excessive movement of a field’s riser pipelines poses a serious threat to the environment and to production.

create disarray

production project.

technology development efforts – essentially solved this problem. Special pieces of

This is especially true in the Gulf of Mexico as the region is home to the current-induced phenomenon known as “loop currents.” In

equipment, called “strakes,” are typically added to a riser to serve as a deflector for these environmental conditions such as

79

vortex induced vibration (Figure 24). In effect, these strakes allow the riser to “shed” the force of the loop currents and maintain a

reliable position in relation to the surface and subsea equipment being connected.

Figure 22: Riser Pipe with Anti Vortex Induced Vibration Strakes

Source: Quest Offshore Resources, Inc.

Additionally, risers are still evolving as oil companies and equipment providers strive to refine and perfect these technologies. A few added benefits of increasingly new riser technologies will be the ability to quickly disconnect a surface facility in the event of a hurricane, reduce the weight of the riser to allow for smaller facilities, and many other technological advances that will increase the efficiency by which produced liquids flow through the pipeline system

As with risers, the primary purpose of an offshore, subsea flowline is to transport liquids either from the well back to the host facility, or from the host facility back to shore.

In every project development plan, pipeline routes from the production platform to onshore must be determined. This is done with the aid of additional services from “G&G” or seismic companies. Through the use of acoustic imaging technology, these

.Pipelines are used to transport material both to and from a producing well(s). While it is generally understood what these lines are used for the technology being used in many of the Gulf’s subsea pipelines is leading edge incorporating space age materials.

companies can create a detailed map of the seafloor. This allows companies to visually map the best route for a subsea pipeline, ensuring the safe and efficient transportation of produced materials.

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While conceptually fairly straightforward, the risers and flowlines of an oilfield are some of the most critical components that employ a high degree of technical complexity and subsequently high capital cost. To install offshore risers and flowlines, the offshore oil and natural gas industry utilizes a of fleet specialized offshore installation boats. The fleet is operated by a very capable group of companies with a very long history of successfully installing the multitude of

Figure 23: Marine Construction Vessel Installing Flowlines

equipment pieces needed to produce the offshore natural resources of the U.S.

These boats, or “vessels,” are large and expensive pieces of equipment, ranging from US$150 million to more than US$1 billion to design and build. For this reason, installation contractors are very selective when deciding whether or not to build any new vessels.

Once the partners for a given field have determined which solution best suits the field, and provides the most effective use of all parties’ capital expenses, a field

Source: Quest Offshore Resources, Inc.

of the project has been determined, the company(s) will then proceed to the “project sanctioning” phase of development wherein an offshore oilfield receives ultimate

development plan is presented to the relevant decision makers for the companies involved. thoroughly When the plan and has the been

reviewed,

potential

approval to proceed with the final investment decision.

economic value

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Stage 3: Project Sanctioning

Once the proposed concept for developing a field has been presented, a decision is made whether or not to Sanction, or give the goahead to, the field in question. The decision to sanction a project given a suitable development plan has been presented – is largely a consideration of the profitability of the field.

It is important to understand that oil and natural gas exploration and production

companies consistently realize rather low profit margins. A fact that can often be overshadowed by the focus placed solely on announced profit numbers. In other words, the cost of being in this business is very, very high. In order to maintain domestic production, these companies face a rather

Moreover,

the

companies

involved

in

steep investment – or re-employment of those profits. This happens at such a rate that most major oil companies only

developing and producing the field must be assured that each will receive a companyspecific return on the capital investment that must be made. A field may cost as much as $10 billion and make take several years to fully develop. The project sanctioning

Once sanctioned, the project moves into the engineering and design phase. During this time, the oil companies, their suppliers and third-party support organizations work

Specific tasks in this stage are to take the concept created in stage 2 and sanctioned in stage 3, and compile the designs that will guide the companies through the actual building and acquiring of the materials to create the equipment that is needed.

together designing the pieces of equipment

highly technical and installation

methods that will be needed according to the concept chosen of in the “Concept

Engineers spend many hours pouring over technical specifications and designs to

Selection” phase

development. This

ensure that the minute details of each piece of equipment are built exactly to

process can vary in duration depending on the overall size of the project being

specification. As such, this stage of work employs the use of many highly trained and highly skilled engineers.

considered, but generally takes more than a year to complete.

This phase of the project development life cycle is a critical source of creation for jobs, as much of the engineering work that is to be done is contracted to third parties – namely engineering firms. While the vast majority of oil companies have their own engineers to carryout design and

At present, there is a large deficit of qualified, young engineers to continue this work when their move more towards experienced retirement.

counterparts

While this poses a large threat to the industry, it is one that is being addressed through university partnerships, public

development plans, many contract to highly specialized engineering firms as an added measure of safety and quality assurance. Many of these engineering firms have grown fairly large over the last decade, with many employing upwards of 200 employees.

relations campaigns, early career engineer programs and other mediums. Regardless, this generational gap presents a great opportunity for young engineers and other business students to fill a growing, always vital role in the energy supply chain.

Additionally, many of these firms serve as a great entry point into the industry for young college graduates.

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Stage 5: Execute

The “execute” phase is the stage during which the field is “put together,” so to speak. Consequently, this stage is also the primary point during which the bulk of capital spending takes place. The execute phase sees the installation of the physical

equipment procurement, facility fabrication and SURF fabrication.

Development Drilling
As the name suggests, development drilling simply refers to the process by which the wells that will produce the field are drilled and completed. While technically easy to understand, this component of a field regularly accounts for roughly 55 to 60 percent of a field overall capital cost (including exploration drilling).

equipment that will be used to produce the oil and / or natural gas from a field. A vital component of this stage is ensuring that companies contracted by the oil company to perform various scopes of work have been fully vetted and meet company safety and quality requirements.

The primary costs incurred during these During an oil company’s execute cycle; the wells for the field are completed and finished with control modules (called subsea trees). The wells are then tied together via activities are the contracting of an offshore drilling rig and the supporting services that accompany these assets(Table 19). By and large, these rigs are contracted under longterm, multi-year agreements ensuring that operators have access to a rig when needed, as well as providing an added measure of financial assurance to the rig operators.

pipelines, and powered by subsea cables or “umbilicals.” Pipelines carry the produced product either straight back to shore, or to an offshore fixed or floating platform

production facility.

The general stages of the Execute Phase are development drilling, materials and

Aside from the actual cost of the rig and its crew, the operator must also pay for the support boats that transport all drilling fluids and other supplies to the rig, as well as paying for helicopter transportation for

company will begin the process of sourcing all of the materials needed for the subsea and facility equipment. During these

personnel. Additionally, the operator will incur costs related to the physical materials used during drilling operations (pipe, drilling mud, etc.) which all must be procured and physically transported to the field.

mutually beneficial terms for all parties involved, while ensuring that the project schedule is maintained.

Facility Fabrication
Often, the most critical component to be

Materials Fabrication

&

Equipment

Procurement

/

fabricated is the host facility for the field. These units represent a large portion of

Simultaneous

to

the

beginning

of

capital costs to the oil company, and can take upwards of three years to complete depending on the size of the unit.

development drilling (and often even before development drilling begins), the oil

Figure 24: Gulf of Mexico Topside Fabrication Yards

Source: Quest Offshore Resources, Inc.

When contracting for a facility in the GoM, operators will often seek to separate the hull (base of the structure that supports the weight of the and topsides topsides processing (above-water

processing equipment) portion of the facility. This is due to the region’s fortunate position of having multiple fabrication yards along the Gulf Coast that are specially geared to providing topsides fabrication services 85

equipment)

(Figure 26). This provides an added value of allowing the oil company to maintain a presence at the construction yard – ensuring that designs and plans are carried out per specifications.

Gulf of Mexico subsea production systems are largely built and assembled

domestically.

Once fabricated and delivered, the oil company will employ the use of the drilling

This separation in the construction of the hull and topsides of a facility is an important distinction for the Gulf, as nearly 60 percent of facilities spending are allocated to the topsides. The existence of local fabrication yards for these services provides a large amount of jobs to the nation, as well as ensuring that a majority of the facility (often the most expensive piece of equipment) is purchased and manufactured domestically.

rig working on the development wells to install the system on each completed well. The control systems are connected and controlled at the surface by the use of subsea umbilicals.

SURF Fabrication: Subsea Umbilicals
To ensure proper control and powering of the well, subsea umbilicals are employed. As mentioned above, these units are

essentially long underwater cables used to Once fabrication is completed, the hull and topsides are “mated” either just offshore from the fabrication yard, or the topsides are transported to the field and lifted onto the hull for final commissioning in preparation for production. Similar to subsea production systems, a large majority of these units Similar are to provide power (electric or hydraulic) to subsea systems, as well as providing essential fluids and chemicals to maintain production.

manufactured

domestically.

SURF Fabrication: Subsea Systems
The company must also take the designs and plans previously developed for the subsea production systems and contract for the fabrication and delivery of these

subsea trees and control systems, the umbilical is a highly engineered piece of equipment that requires a fair amount of engineering work to safely employ on a field. The costs for this piece of equipment can be generally categorized as: Engineering / Design, Raw Materials, Fabrication, and Delivery & Installation. Once the umbilical has been delivered, the oil company will contract for the installation of this equipment using one of the industries highly capable installation boats. While costs

technologically advanced equipment pieces that will control the production of each well. The contracts are often quite large

compared to other SURF equipment pieces, with an average control system (subsea tree plus control package) costing between $9 million to $15 million. A great advantage the U.S. has in terms of these systems is that

86

for these assets can reach rather large numbers of a “cost-per-day” basis, it is important to note that the industry’s highly skilled contractors have created large

Source: Quest Offshore Resources, Inc.
Even though there are added complexities with the fabrication of subsea pipelines, generally speaking, a pipeline is a pipeline. Moreover, steel is traded globally across a multitude of industries. manufacturing has been contracted, the operator begins the process of contracting for the installation of these pipelines typically through a competitive tendering process. A very important distinction to understand regarding the offshore pipelines of a project This means that for every pipeline that needs to be purchased, the oil company is competing for the raw materials, whose cost is dependent on global demand for steel, on a global inter-industry scale. Additionally, the cost of all pipelines needed for a field can see volatile shifts across the life of the project’s development cycle, making costs harder to control. Like the subsea umbilical, the installation of Once the amount of material needed has been determined, and suitable pipeline pipelines relies on the industry’s fleet of offshore installation vessels to complete is that between 67 to 85 percent of the offshore pipelines installed in the Gulf of Mexico are purchased outside of the U.S. This can primarily be attributed to the migration of heavy industrial activities to developing countries. India, for example, is home to many of the world’s largest pipeline fabrication companies.

87

these activities. However, a key difference for these pieces of equipment is seen in the type of boat needed.

Once the flowlines and risers are installed, the lines are tested to ensure there was no damage during installation. Provided that these tests produce positive results, the

Given that pipelines weigh a significant amount more than an umbilical, the assets that install these flowlines and / or risers are often noticeably more expensive. This

transportation system of the oilfield is ready for use. While conceptually fairly

straightforward, the risers and flowlines of an oilfield are some of the most critical components that employ a high degree of technical complexity and subsequently high capital cost.

increase in boat cost reflects the larger, more highly rated equipment needed on the boat to ensure that these lines can be safely installed.

Stage 6: Operate

The “Operate” phase is generally used as a generic description for the activities that are undertaken once a field is brought on to production. The actual tasks required to maintain safe and efficient production are extremely vast in quantity. The general categories include all activities that maintain a suitable flow of material through the infrastructure and systems installed during the “execute” phases. Operations must ensure that production levels are capable of continuing at levels that are sufficient to ensure a financial return to the parties involved.

tear associated with full time exposure to the elements, performing routine maintenance to ensure continued safe operations, and ensuring safe transportation of produced fluids.

All

these

activities

require

continued

employment of not only a large crew on the production platform itself, but also require support staff onshore. The operating

company requires onshore administrative, management, Onshore and engineering must support. the

suppliers

provide

necessary equipment and supplies. Boats and helicopters are needed to transfer crew

Operating activities range from continuously supplying food and fuel to the platform, repairing damage caused by the wear and

and supplies back and forth. Wells must be monitored necessary. and worked over when

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Appendix 3: RIMS II I/O Model Definitions

89

RIMS II I/O Model Definitions *Provided by BEA Final-demand Multipliers
Final-demand output multipliers show the total industry output per $1 change in final demand. An estimate of the change in total output in a region’s economy is calculated by multiplying a final-demand change times a final-demand output multiplier.

Type II Multipliers
Type II multipliers not only account for the direct and indirect impacts based on how goods and services are supplied within the region, but they also account for the induced impacts associated with the purchases made by employees. Type II multipliers estimate an impact that is the sum of the

Final-demand employment multipliers show the total number of jobs per $1 million change in final demand. An estimate of the change in total number of jobs in a region’s economy is calculated by multiplying a finaldemand change times a final-demand

direct impacts, indirect impacts, and induced impacts. For example, an individual who works in offshore manufacturing in Ohio earns a certain amount per year. This money does not disappear after being paid to the individual. Rather, this individual will use some portion of earnings to buy necessities, luxury items, etc. Furthermore,

employment multiplier.

Final-demand value-added multipliers show the total value added per $1 change in final demand. An estimate of the change in total value added in a region’s economy is calculated by multiplying a final-demand change times a final-demand value-added multiplier.

a good majority of this spending will occur in Ohio across multiple industries. The RIMS II multipliers account for this effect, and as such, provide for the comprehensive

economic impact of the industry on an individual state.

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Appendix 4: Explanation of Terms

91

Table 22: Explanation of Terms

FPS / Facilities
The processing facility located at the surface. In shallow water, a Fixed Platform. In deepwater, an FPS (TLP, SPAR, SEMI or FPSO). The primary components of spending are the steel for the hull (bottom structure) and topsides (processing facilities). component price inputs

Drilling
The shallow or deep water vessel used to drill the well. The cost of the drilling rig includes the day-rate for the rig, as well as the support boats and chemicals needed to operate the rig. *Day-rate includes the lab or on the rig. component price inputs

Fixed Platforms (incl. surface wells)
Refer to "FPS / Facilities." This includes the fixed platforms, as well as the cost to drill and complete the surface (dry-tree) wells located on the platform. component price inputs

Description

The offshore oil and natural gas industry is instrumental to the United States both from an energy supply perspective and due to its contribution to U.S. GDP and job creation. In 2010, over 30 perc...

The offshore oil and natural gas industry is instrumental to the United States both from an energy supply perspective and due to its contribution to U.S. GDP and job creation. In 2010, over 30 percent of the oil and 11 percent of the natural gas produced in the United States was produced in the Gulf of Mexico (GoM). This production is crucial to U.S. energy security. In addition, capital investment and purchases of intermediate inputs of the oil and natural gas industry stimulate its entire value chain and ripple through many sectors of the economy, creating jobs, contributing to GDP and generating tax revenue at all levels of government. Oil and natural gas industry activity supports employment across a wide swath of industries in manufacturing and services, including oil and natural gas machinery, air and marine transport, legal and insurance services. This report builds out the entire value chain of oil and natural gas development and production in the Gulf of Mexico. It quantifies the capital investment and purchases of intermediate goods undertaken by the oil and natural gas industry, identifies linkages to supplying industries, and estimates both job creation and contribution to GDP associated with oil and natural gas development. A unique feature and strength of this study is the primary nature of the capital investment and spending data. Quest Offshore Resources, Inc. (Quest), drawing on its proprietary database of suppliers of capital equipment and intermediate goods to Gulf of Mexico oil and natural gas operations, is able to bring primary data to bear on the issues of importance to this study.